He interviewed users, built a waitlist & raised $1.1M—but it still didn't work. | Frankie Le Nguyen, Founder of Staging Labs

Frankie lost $10K in a crypto transaction—so he started Staging Labs to find a way to help others prevent crypto scams. He was head of an incubator called Entrepreneurship First and had seen dozens and dozens of founders build startups. He knew exactly what to do—and he did everything right. He found a co-founder, built an MVP, did customer discovery, checked willingness to pay—but he still failed.

The world changed when crypto crashed in late 2022. The people who were originally interseted in paying for crypto insurance nolonger were. And by the time Frankie realized it, it was too late.

Here's how it happened—and how he was able to sell his startup even though the product wasn't working out.

Why you should listen: 

• How to sell your startup even when it's not working out.
• Why sometimes the best ideas come from personal struggles. 
• Why you need to constantly validate willingness to pay.
• Why you can't treat lean startup as a series of checklists.
• The last 10% of execution is often what determines success or failure.
• Partnerships can be a double-edged sword in startup strategy.
• How aligning personal values with customer needs is essential for founders.

Keywords
entrepreneurship, startups, crypto scams, fundraising, product launch, market timing, personal experience, validation, community building, business challenges, willingness to pay, user experience, scams, customer alignment, market cycles, acquisition, strategic partnerships, investor relations, startup lessons

Timestamps:
(00:00:00) Intro
(00:02:25) The Idea & The Origin of Staging Labs
(00:08:07) Next Steps & Pre-Seed Fundraising
(00:13:27) Why you should never depend on partnerships
(00:18:28) How to create urgency
(00:24:55) Pivoting
(00:28:43) Trying to sell the business
(00:35:55) Biggest Lessons Learned

Chapters

• 2:25 The Idea & The Origin of Staging Labs
• 8:07 Next Steps & Pre-Seed Fundraising
• 13:27 Why you should never depend on partnerships
• 18:28 How to create urgency
• 24:55 Pivoting
• 28:43 Trying to sell the business
• 35:55 Biggest Lessons Learned

Transcript

Frankie Le Nguyen (00:00):

So Staging Labs came out of a personal loss of personal experience actually, in this very room that I'm recording within, I signed a transaction and lost $10,000 for my wallets in minutes. And I remember slamming my hand on this very floor immediately after. I just felt stupid. I felt embarrassed. I felt, you know, like an idiot. I think Rob mentioned this in one of your other interviews: focus on problems that are resilient to market cycles. Like I heard of one story where someone lost over a hundred thousand dollars and then got scammed by Recovery services and lost even more money and completely lost control and had to sign over power of attorney to his partner. So what we did is like a demo of a prototype, ran people through it and then asked for a prepayment. So I think that's like a masterclass in trying to get willingness to pay. 

Previous Guests  (00:43):

That's product market fit, Product market fit, product market fit. I call that the product market fit question, product market fit, product market fit, product market fit product market fit. I mean, the name of the show is product Market Fit.

 Pablo Srugo (00:54):

Do you think the Product Market Fit show has product market fit? Because if you do, then there's something you just have to do. You have to take out your phone, you have to leave the show five stars. It lets us reach more founders and it lets us get better guests. Thank you. 

Frankie, welcome to the show, man. 

Frankie Le Nguyen (01:10):

Thanks for having me.

Pablo Srugo (01:10):

So, I mean, we've done a few of these now and, and I like it. I'm glad that we're doing this. You know, we started by just doing hyper successful founders and then we go, how do they get started? And we're still obviously doing that, but we're now putting in some of these stories again, like mine, gym track, where things didn't really work out. And in your case, I mean, you raised over a million, you had 10,000 plus on a wait list, you had hundreds of paying users. And still, ultimately it failed, right? It didn’t end up working. At least in terms of the vision that you had. You did find a home for it, which is actually a big deal, we’ll get to that, but it didn't work out in the big way that you'd hoped. And it's just crazy. Sometimes, the difference between something that works and something that doesn't is actually like, not nearly as much as you might think. You know, like when you hear the big stories of Uber or whatever, , it just seems like everything just kind of worked. But oftentimes, you're going through it, you're like, everything's kind of working and then the end is not necessarily like an Uber. 

Frankie Le Nguyen (02:11):

so there's a bunch of people doing 90% of the same things and don't get there. Right?

Pablo Srugo (02:15):

Exactly. Exactly. So it's pretty crazy. So anyways, we'll go through it. Maybe let's start at the beginning, right? Like, what was StagingLabs? what was the idea? Where did the idea come from?

Frankie Le Nguyen (02:25):

So Staginglabs came out of a personal loss of personal experience. Actually in this very room that I'm recording this in, I signed a transaction and lost $10,000 for my wallets in minutes. And I remember slamming my hand on this very floor. When I told the story during the, the founding journey gave me a bit of PTSD, but I moved on from it now. So she was, you know, a bit more nostalgic then in the moment. But basically-

Pablo Srugo (02:48):

You bought a token, you bought some token or something like that then you just realized? 

Frankie Le Nguyen (02:51):

No, my co-founder sent me this project. I'm not throwing him under the bus, but he sent me this project. So my guard was down. But that website had been hacked. Like it was a web website that had a phishing link, and so would point to a different Discord server. And I signed transactions I shouldn't have signed, but my guard was down. So I made the mistake, but I think it's so easy for someone to make that mistake immediately after, I just felt stupid. I felt embarrassed. I felt, you know, like an idiot. Like, it's a very emotional reaction if I've been scammed. You feel like the victim. it’s very-

Pablo Srugo (03:21):

It goes beyond. I mean, it was 10K, so it was a decent amount of money. but it goes beyond just losing the money. It was more just like, you feel like an idiot for having lost money.

Frankie Le Nguyen (03:29):

I just was stupid. Right? And it's not a position that you're typically in, you know, I joked with my co-founder, Jake, that I wish I had some sort of panic button or I wish I was able to freeze my credit card, you know, coming from a world of typical finance. And he came out, you know, a few hours later saying that I can build it. And I called bullshit. I was like, there's no way. If it existed, it could've been done. It would've been done already. Right? 

Pablo Srugo (03:51):

Because isn't that the whole point of like, blockchain's, like it's not supposed to be reversible.

Frankie Le Nguyen (03:53):

Yeah, exactly. Right. That's counter to how blockchain works, right? But there's actually loopholes in it. As many, you know products are built out of those loopholes or, you know, just ways around things. But I tested it, right?  I probed every single one, I came from a VC background. I knew how to poke, like, you know, poke holes. I spent so much trying to figure out why this wouldn't be possible. And the more I poked, the more people I spoke to, the more I realized he was onto something. And so then I went on the other side to validate, okay, am I the only one dumb enough to get this? Like, I know some people are posting about, you know, getting scammed, but it's not like a common thing that you read about. And so I spoke to a hundred people and funny enough, like usually in the first little bit, people are just not usually very open to admitting that they've been screwed.

Frankie Le Nguyen (04:37):

But as soon as I told my story, I was vulnerable and I shared my side of the story, they opened up and I think out of the a hundred person I spoke people I spoke to 30% had had scams happened to themselves and 50% knew of someone that had been scammed in their personal circles, right? And so it's a rampant problem. And some of the stories were horrible. Like I heard of one story where someone lost over a hundred thousand dollars and then got scammed by recovery services and lost even more money and completely lost control and had to sign over power of attorney to, to his partner. And so it's just like.. mine is a small scale, but it could really devastate lives. If you've read up on pig butchering scams, romance scams, like it goes way worse than what I experienced. But it felt like a problem that like, you know, was top of mind something that really was personally relevant to me. 'cause, You know as a victim myself and had a significant magnitude in impact. Like, I just thought of like the 10 closest people to me if they were to dive into crypto, which is like three of them will get screwed, and there's nothing I can do about that. So, we went out to solve that problem. 

Pablo Srugo (05:43):

Maybe just context, were you working full-time at that point, or had you already decided you wanna start something and then this happened?

Frankie Le Nguyen (05:50):

Yes. Okay. Good context. So my co-founder and I met through entrepreneurs first. I used to be the general manager there, and I ran the program. He was a member that I recruited into the program, and immediately knew I wanted to work with him. But it's a bit of a complex because-

Pablo Srugo (06:08):

Normally you just-, for co founders, the way it typically works is you get a bunch of great founder types together. They come up with ideas, they build stuff that's how the accelerator like incubator, accelerator, whatever you wanna call Entrepreneur First. But that's kind of how it works, right?

Frankie Le Nguyen (06:19):

Yeah. And I ran, you pair up co-founders, they stress test the founding teams, and if there's a strong founding team with a strong premise, we then double down on a pre-seed bet. But I ran the program so I couldn't just work with him. That's a conflict of interest <laugh>. But he unfortunately did not, fortunately for me, did not find his co-founder on the program. And so I left EF. I had spent, you know, four years there and it was the best career, best part of my career at that point but four years of anything you'll plateau. Eventually I wanted to take a bigger bet and I also felt like a bit of a fraud or imposter, you know, pitching people that like if you're ambitious, you should start a company. And here I am sitting, you know, from a high horse position, not starting a company be,like wow, like what?

Frankie Le Nguyen (07:02):

Right? And so I knew I wanted to take the bet I had built companies earlier on as a teenager, we can go into that, but none of them took off. And so him and I decided to bootstrap. We knew we wanted to take our time to figure out a real problem before instead of being rushed within the program. And I think it's quite difficult to separate the two hats. If you're running a program and trying to go through it yourself, it's very hard to like, you know, really go through it. It's more theoretical-

Pablo Srugo (07:28):

So you kind of rip the bandaid off. You're like, I wanna do this. I'm gonna do this. This is the person I wanna do it with. Boom, I'm out. Let's go.

Frankie Le Nguyen (07:33):

Yeah. And we spent six months invalidating a bunch of different problem spaces. And then the problem of crypto scams happened because I got scammed. So it was purely based out of my own experience of experiencing the problem.

Pablo Srugo (07:46):

And so you start diving into this- which you're doing the right things, and obviously coming from the world of EF and seeing so many companies being built, and I'm sure reading up on the different ways you should do it. Like you had that playbook pretty down pat. And so you go, you talk to a hundred people, you realize this is a real problem, what's the next step?

Frankie Le Nguyen (08:07):

Yep. So we've validated that there is willingness to pay. people were willing. So what we did is like a demo of, a prototype brand, walked people through it and then asked for a prepayment. So I think that's like a masterclass in trying to get the willingness to pay. So I think we did that right? The nuance is that we didn't necessarily continuously validate over time and then context changed, but just for story purposes, we validated that the willingness to pay was able to generate revenue based on nothing. Like that's-

Pablo Srugo (08:34):

this is direct to consumer?. And how'd it work? Like, you bought this kind of- it was almost like an insurance type product or what? how did it function? 

Frankie Le Nguyen (08:40):

Yeah, so think of guardrails that your typical bank account has. like a transfer limit. Like you can't transfer more than $5,000, $10,000 a day. We enabled any self custody wallet  it to be able to set their own guardrails. So you don't want to -, so if a transfer triggered more than a thousand dollars in 24 hours, move everything away. So, you max your loss prev- like a stop loss kind of thing. And it was a subscription product that people paid for. And so we didn't have a product, it was just a demo, but we generated revenue just from pre-sales because- and timing just for context, this is March, April 22. So still in the bull market, not- 

Pablo Srugo (09:21):

right before, right at the tail end? .

Frankie Le Nguyen (09:22):

Yeah Para Luna. Yeah, yeah, yeah. Right. So this is like just again, context for timing, right?

Pablo Srugo (09:26):

What were you charging and how many users did you get to pre-buy more or less? 

Frankie Le Nguyen (09:29):

So, at that point, just a few dozen, just enough to get confidence and enough strangers that it wasn't just based on me. We were just charging like a varied, arbitrary amount at the time. Like $10 a month, a hundred dollars a year, like just a B2C product, right? Like you just gotta test and see where, what people are willing to pay. But we got, we had the signals and we had the demo, and so we went out and fundraised. We did a decent job of playing the game of not saying that we're pitching and, and just met with VCs and angels to build relationships. And out of the first 30 conversations, two of them preemptively on their side said like, whenever you're ready, like, I'm in for this amount without me asking them for money.

Frankie Le Nguyen (10:11):

And that signaled to me that we were ready to go. So before we even went out to fundraise, like a good quarter, almost a third of the round was already filled. Had I done it again, I would've waited till half- Actually, I think depending on the team, not everyone's able to pull this off, but, a third to a half of the round took like a month versus the half to the hundred took like a week. Just 'cause FOMO kicked in and, and everything ran from there. So I think it would've been just easier had we just waited a bit longer, but we went on to raise, we had over 2 million in commitments, so we took a lot less than we could have taken. We took it 1.1, we were actually gonna stick to one, but then a few strategic angels came in that we really wanted on the cap table. 

Pablo Srugo (10:50):

what was the reasoning for that? For not just taking the two?

Frankie Le Nguyen (10:53):

My co-founder and I knew that we don't need the money for ourselves, for our team. It's really to hire. And we knew that a certain number of hires could get us to where we needed to go, just 'cause of my co-founder strength on the tech side. So, we didn't need much to prove. We'd rather have flexibility, dilute less and then go on for further raise. But that has pros and cons, right? I think like, I mean, we manage our money well enough to have optionality throughout, but if we had, we burned it a bit earlier, I think we would've been forced to make a certain decision earlier than prompted. It was really, you know, I think there's no right answer there. I think we, it, it came from a values perspective of like how my co-founder and I wanted to run the company who we are as people, and we wanted to be frugal, but there's a very easy like flip side where we could have gone out to raise two, 3 million to have many swings you know, and just have more runway. So it could have gone well,

Pablo Srugo (11:39):

Your plan was to kind of keep-? What did you keep the team at through that kind of year after by total?

Frankie Le Nguyen (11:45):

At the peak, we were able to hire a fully Canadian team. So we, we paid less than if we were to hire, you know US and took advantage of shred and all that. 

Pablo Srugo (11:56):

Of course.  I mean,, it's crazy, man. Like, you know, you're doing all the things, you're doing all the things right? I'm just like, when is this thing gonna start to <laugh>? You know? When do  the punches start happening? 

Frankie Le Nguyen (12:04):

from a VC to founder perspective you've seen enough rodeos to know what not to do, but I think the real talk, it's just like the 90% almost doesn't matter. The bottom, like the last 10% is what matters. You could do everything right and still get screwed, you know, it's like how do you do the last bit? And that's like, you cannot teach that to someone.. It's not a framework. It's not, you know, a repeatable path.

Pablo Srugo (12:26):

Is it luck? 

Frankie Le Nguyen (12:26):

It's luck, timing and just speed of learning? I think, yeah,, I think if we had learned some of the lessons faster, we would've probably made it.

Pablo Srugo (12:37):

so, it's not pure luck. Pure luck, there’s nothing you could do about it. 

Frankie Le Nguyen (12:41):

No no, I don't think it's no-  I don't think, yeah, I mean, like, it's not to say that anyone who's fast is, you know- is able to win, it's just that you decrease the probability of failure significantly if you just learn faster. And I think we were slow on some certain things we could talk about.

Pablo Srugo (12:57):

We'll get into it. We'll get into this. I took you on a tangent.

Frankie Le Nguyen (12:59):

but yeah, so we went out to raise, you know, got on tech crunch, I did everything that you would expect of a pre-seed startup. But I think part of it is, I was doing it as a checkbox exercise as opposed to trying to do everything right, as opposed to just doing the one thing. And I think that comes from a VC perspective of throwing frameworks as opposed to pure executing. It took me quite a while to shift and we could talk about the shifts later, but we went out to raise,  closed the round, built the product and by the time we launched one key piece of context here is we were tying up our launch with meta mass snaps, which is one of the largest crypto wallets in existence.

Frankie Le Nguyen (13:40):

And they were launching a marketplace and we were partnered up as one of the partners on the marketplace, but they delayed their launch significantly. And we relied way too much because I knew that in a B2C crypto play, it was either partnerships or community. And one of the mistakes we made is not investing enough in the community. We didn't have a strong enough community to build our initial product  to get it to venture scale. And so we went with the partnerships approach, but that made us super dependent on them. And the fact that they delayed it multiple times, just meant, that we entirely missed the window. So by the time we went on to market- so we raised in late 22, like right after Tara, but before FTX, so like in between two shit shows just the viable amount of time needed. 'cause that had we been like a few weeks

Pablo Srugo (14:22):

Close to FTX it's over. There's no way

Frankie Le Nguyen (14:23):

 Yeah. Like good luck <laugh>, right? So we were very lucky there that that's pure luck. I didn't plan that. But we only went to market-. We were supposed to go to market sometime in March, but we only went to market in September. Not anything due to our own execution because of our reliance on partners. So we should have launched elsewhere and, and gone with that,

Pablo Srugo (14:42):

when you say go to market, you're not talking about financing, you're talking about launching the product?

Frankie Le Nguyen (14:46):

No, launching the product itself. Yeah.

Pablo Srugo (14:48):

You raised in late ‘22, but you didn't launch until fall ‘23. Were you spending your time on in nearly a year or whatever, nine month period?

Frankie Le Nguyen (14:58):

Yeah, so we were building and building out partnerships and getting our channels ready to go as opposed to having continuously validated the willingness to pay. Had I done that period again, I would've focused more so on who is willing to pay. And in a nutshell, we chose a target customer, which I will brand as web 2.5. So someone who's not necessarily full-time into crypto has a large amount of disposable income, you know, has more than 10K in crypto assets, but understands the value of security, understands the value of VPN pays for VPN, like that persona in early ‘22 would be and did pay for our product. But that persona in ‘23 ran away from crypto. Like they weren't transacting at all. They had like, they, they were HODL’ing. Yeah. But not doing anything with it. Right. And so how do you convince someone to pay for something if they're not opening up their wallet period? it's like a dead end No go. But

Pablo Srugo (15:52):

Did you stop talking- , 'cause you had a wait list, right? Like, what did that look like? Or did you just stop talking to customers in 2023 altogether? 

Frankie Le Nguyen (16:00):

No, we talked to customers in terms of figuring out what is the best UX for the flow, but we didn't revisit willingness to pay, and that was just the assumption. So we had-

Pablo Srugo (16:08):

It would have been checked off. You're like- there are people. I know 'cause I did the exercise, so we're good..

Frankie Le Nguyen (16:12):

Correct right. And then when we went to market later on. we were like oh shit, Like this is not planning. So then we pivoted our focus towards degens. But then degens in a bear market is a very different- 

Pablo Srugo (16:23):

And degens for the non-super crypto crowd as well. Like the people that are just like all in, right?

Frankie Le Nguyen (16:27):

People are just all in who typically don't even show their real identity. They're very greed oriented. it's just, how do I make the most amount of money? They don't care about safety. they believe they're gonna live forever. They're not gonna necessarily be willing to pay for security. And this is not just us. There's a bunch of security startups in the crypto space that also have to pivot outta that user group.

Pablo Srugo (16:51):

The other question I had is through 2023, you're waiting for this partnership, but why not just launch it for whoever's there and willing to pay in your wait list? 

Frankie Le Nguyen (16:59):

We did. And that's- but, so we found that there was a lack of willingness to pay and we're adapting as we're also getting ready for a partnership launch with MetaMask , which is kind of like we knew we were heading into like a path where the product market fit isn't there, we're already committed. They put in significant capital to launch with us. And so, we were kind of stuck in this place of, okay, like again, I think founder optimism, you assume that 40 million active users.. a certain amount will convert and whatnot. 

Pablo Srugo (17:26):

I'm curious. Yeah, I'm curious to get the details. 'cause I think that's critical. So, September is a metamask. When do you launch kind of publicly… private?

Frankie Le Nguyen (17:35):

Yeah, so private we launched in like May.

Pablo Srugo (17:38):

Okay, so you're taking in users off your wait list? That's the private-? 

Frankie Le Nguyen (17:41):

Yes, okay. In May, just trying to get ready for it. Like we have an alpha beta, we ran it through like hundreds of iterations, but we focus primarily on usability on how do we-  and again, crypto is so nascent where there's so many problems we have to solve in terms of like how does payment work how do you set up, like what types of wallets do you want go into? What networks  are you gonna choose? Like, it's so fragmented that just, just figuring out that takes months, right? In terms of building it. And so what we should have done is test for willingness to pay throughout as well as the user experience side of things. I think we were so hyper-focused on just making a seamless, simple product that we forgot to ask if people would pay for the simple product. 

Pablo Srugo (18:20):

So, I get that. But then, so when you start letting people in May, do you ask them to pay and then you start to see they won't or what? What are the insights? 

Frankie Le Nguyen (18:28):

No, no, no. Like these are people already on the waitlist. We're not testing out for willingness to pay immediately. We were trying to test for like the flows we tested for like willingness to pay again closer to like June, July. And that's when we realized, no, people are not willing to pay here. Like people were willing to pay on the spot on the call back when I did it in validation mode here, people were coming up with excuses saying like, oh, I'll think about it. And the, the, the desire, the urgency wasn't there. So I think we had a high impact problem, but not an urgent problem. It's similar to insurance, similar to other security products where you're basically promising you know, a loss prevention in the future. So you're abstracting the problem away from the future and bringing it to today. And that's a hard thing to do. 

Pablo Srugo (19:12):

Yeah, you, you need that. Insurance is a weird thing. So we have a company, for example in our portfolio called Rewind and they're like,, backups for, for SaaS apps, right? So they start with- Shopify is still kind of the big place, but like turns out, you know, if you build a Shopify store and you either get hacked or some one of your employees does something malicious or just an accident and you like delete all your products, for example, there's not necessarily a way to back it up. Like to just undo that within Shopify. And so rewind is a system you pay, you know, X dollars per month and there's always a backup there waiting in case something bad happens. But it's very much an insurance play. 'cause You go to somebody outbound and you're like, hey, here's a disaster scenario. You know what? That's paying $10 a month. Like, ah, sure, maybe. I don't know. You know, I think you need to have, I mean you need to have events. Like, and, and I think when there were all these scams happening, if it's in the news, people are seeing it. They get concerned, they wanna make sure they insure against it. If it happened to them or somebody near to them, that's also a reason. But if you're not having that, then the urgency is usually kind of gone. Yeah.

Frankie Le Nguyen (20:19):

And I think scams have this weird psychological perspective where people think they're better than others and it won't happen to them. Especially for like the crypto native crowd. I think how we focused primarily on the web 2.5 crowd and they were active. They would, they would feel that, they would see the scams would be like, oh, I should probably do something about this. The crypto degens would just think like, no, that will not happen to me. And this is the worst part of it. People who got scammed in crypto, native personas use scams as a badge of honor as like this is my right to stay in this space. I can lose 10K and I'm good. You know, and it's like that culture instead of just, what is this? You know? Like, and so that's elitist one, but also two it's so nasty and awful for the overall ecosystem. Like if, like that's part of the r ritual of rite of growing up for lose

Pablo Srugo (21:12):

Space. Yeah. The rite of passage. You lose 10 K, it doesn't really inspire trust amongst like the masses, <laugh>. No. 

Frankie Le Nguyen (21:19):

And that's the accepted, That's the accepted path at that time, right. Which is not what I really wanted to align with which is part of the reason why we pivoted from it because I just wasn't feeling like my personal values were aligned with the people I was trying to serve. I just didn't- yes, I had empathy for them in terms of who they were and what they wanted to do. But it's just , I didn't wanna build for them. And I think like if you're a founder who doesn't wanna build for your customer, and VCs will never tell you this, it's a very hard road to climb. 'cause Like, if you don't care about the person you're trying to spend like 80 hours a week with, good luck to you.

Pablo Srugo (21:49):

No way. Yeah, no way. You've gotta get so obsessed with the minutiae of the people that you're serving. in a way that is just, it's laughable. You know? Like there was somebody I was talking to, somebody doing something with you know, computer vision around roofs, I don't really remember. And you know, these guys are walking around looking at the roofs, the different types of roof. You know what I mean? Like that's what you gotta care about. Yeah. You have to be obsessed. Yeah. It's just like, you have to be obsessed about these little things that nobody else is paying attention to. So the question is, so September you have this launch, I understand why you would wait for it. I would've done the same thing. You're only a few months away, 40 million users. What happens?

Frankie Le Nguyen (22:25):

We converted some of the people we thought we would convert, but then didn't convert more from there. So we had hundreds of paying users. So it was going well the first few weeks,

Pablo Srugo (22:32):

but they, they pushed it to 40 million and you got a few hundred, or was it kind of tiered out?

Frankie Le Nguyen (22:37):

So they, I mean this is a bit tricky to share, but what was meant to be a big push on their end ended up being a very beta thing. So they made it very under wraps and really pushed out to a small group of which is the right thing to do. But, we had like, I think a thousand visits over the first few weeks, which is really not, it was a decent conversion, but, to be paid but not great in terms of top of funnel. Like it was nowhere near what we thought was made available. 

Pablo Srugo (23:06):

What do you think about- I always worry about partnerships, lopsided partnerships in those early days for this reason. Exactly. Which is just- they take up a lot of work, a lot of time to get all this sort of stuff, but on top of all of that, you have so little power that it's a little bit of an exercise in hope that a partner that's a hundred, a thousand, 10,000 times your size is really gonna drive all that traffic to you. And more often than not, what you just said is what tends to happen. Because from that point of view, they're like, why would I push your product? Like if you have demand and you have a hot product, I'll partner with you, for sure. But if you don't have it yet and you want me to push it, thank you very much. Like, I'll see you in a year or two. 

Frankie Le Nguyen (23:45):

I mean, the way we were trying to circumvent that is to do a rev share and that's what we were pitching them, but they didn't have the infrastructure to do it. So we could have done it behind the scenes, but like the goal was basically for every customer that comes on, we give them a cut. for context, their product doesn't meta mask doesn't generate revenue as meta mask. It generates revenue through swaps and changing from one token to another. They take a cut, like affiliate fees essentially. So they didn't have a pro tier and they were thinking of this, but this is like very early thinking. A bunch of other people tried pro tiers and other wallets. None of them worked out. I think willingness to pay from the consumer B2C crowd, it's just a really tough thing to crack today.

Frankie Le Nguyen (24:23):

Doesn't mean that it won't change, but or last year. But I agree, I think partnership risk is super hairy. And I think we wanted it as a hail Mary in terms of figuring out a channel that would work. And we thought that doing a rev share would incentivize them enough to do so because it could be significant revenue for them. But it just didn't turn out that way. And we should have de-risked by testing out different channels and pivoting out of that space altogether, which we did in the end. But we did it too late.

Pablo Srugo (24:49):

Yeah. So I'm curious on that. So after, once you realize this thing's not working, like how quickly do you start to pivot?

Frankie Le Nguyen (24:54):

Yep. So like September we launch, I think in January it is very clear that this is not working. We had gotten a few bites early on in the validation process that instead of using this for security, that compliance was something that people would care for. And this is not from our pushing, it's just being pulled into conversations with three targets in general. So blockchain analytics company, so there's a bunch of like chain analysis. TRM elliptic are the big three financial institutions, so large banks and then exchanges. And why they cared about this is less so about being a scam because in a world of  financial institutions, all the assets are like already figured out. You're not exposing yourself to the outside world. What they are worried about is exposure to sanctions or illicit assets, meaning a wallet that belongs to North Korea that is sending money to your, your wallet.

Frankie Le Nguyen (25:44):

You have to declare it and have, and according to SAB 1 21, which is an article that was coming into play that they needed to hold the exact same amount in on their balance sheet to counterbalance that asset. And so that becomes a very expensive problem to have. And so we were being pulled into conversations and we found that instead of protecting wallets from scams, we could protect wallets from exposure to illicit activity. And so that's where we had conversations, we pivoted, we did a very thorough discovery process and nailed down those three value propositions. But then we ran into a different problem, which is markets, even though there's willingness to start design partnerships and eventually willingness to pay very slow cycles, small markets to start. And we were in this middle ground of like, we, we had enough runway to maybe pull off one pilot or two. We didn't have the numbers. 

Pablo Srugo (26:36):

How much runway did you have? 

Frankie Le Nguyen (26:37):

18 months as of March? We had paired down and we were frugal throughout. So

Pablo Srugo (26:44):

I mean that's actually a lot of runway.

Frankie Le Nguyen (26:45):

Yeah. So we had enough, but like pilots just understanding, and we're talking like big New York banks, each one is gonna take- just to get to anywhere, it's like a year. And just understanding that from having been on the VC side and the market that we were super targeted for was New York regulated banks, which as a whole has 50 each. ticket size for what we were doing would be in the low six figures. So call it like a hundred, 200 K ar per deal. That's too small of a market to go out and raise another round. So we got into this position where we can build a very good business for people we care about for an industry we believe in, for values we believe in. But that's gonna take us a ton of time, running it close to the end of the runway. And Marcus is too small to raise again, so that if we're doing this, we're consciously going into lifestyle business territory. And my co-founder and I had lots of conversations together. We did start those conversations and a lot of them turned into potential acquisition conversations as well. And so that's how we built up our early interests of getting acquired. But it wasn't an easy call. There's so many ways I could have gone. So you,

Pablo Srugo (27:54):

But you decided against it and you decided to sell the company objectively?

Frankie Le Nguyen (28:00):

Well, we tried it . We tried it and then I remember being at East Denver with my co-founder in March and saying, this is a lifestyle business, wind down or try to sell this thing. And we gave ourselves a, if we don't see this level of like conviction from our potential like partners, then we close or we go with options B or C. And we didn't see the urgency primarily. So the reason why the urgency wasn't there is SAB 1 21, the article got flip flopped. Like, it was nulled in the end. So our reason for it being was a compliance contingent on a compliance article that didn't come to fruition. So it effectively killed the hypothesis there for us. But could have easily gone the other way.

Pablo Srugo (28:43):

You ended up selling the company and returning money to investors, which is actually very, and in my personal experience even very, very hard to do, it's one thing to get your company bought. You know, they say companies get bought, not sold, right? Like that adage. So it's one thing if your company's working, people will buy it. But when things aren't working, especially this early on, how would you even go about that, that process?

Frankie Le Nguyen (29:04):

Yeah, I mean, the selling conversations were not outright selling conversations at first. They were potentially strategic investment or just partnership with those companies. And I think one of the lessons we learned which I, I knew was true, but I didn't realize how true it is, is as soon as you have any hint that you're saying that you're selling where it gets around really quickly. And we ended up finding out from other people that they knew we were selling even though we never talked to them, which is kind of, you know, a bit alarming. So we were very careful to not say that we were selling and really just looking for investment or looking for partnership, but we knew what the value proposition was for each right? And we just needed to go out and run the process.

Frankie Le Nguyen (29:43):

One of the lessons I think I don't know if it's transferable, but it's just interesting for us. Once we went out to sell, we noticed that we thought a much larger company was the right fit. And because the product was too nascent to be directly integrated, most people are looking at us from a more of an acquihire point of view. And it was interesting that larger players were less interested in the founders and more interested in the engineering team. And I knew that because I created links to see like who opened what. And so it, and my interpretation of it, is large companies are not really excited about bringing on someone that has a high chance of turnover and just kind of come in and disrupt shit. And they were much more excited about bringing like a, you know, a multiplied team multiplier team that's worked together before versus a younger startup. So series A where the founder saw the value of bringing on a generalist that knew that like, I'm dropping balls left, right and center, I can bring in another founder to really become a GM of something. This is all anecdotal, but I think it was true for us. And so we've quickly diverted away from trying to sell to huge companies and, and target series A-B founders instead.

Pablo Srugo (30:52):

And walk me through as specifically as you can, the process that you used to do this. Like, you know who you go after, how you get the meeting, what you're telling them at first. 'cause Strategic investment from a CSA company, that's kind of a tough-

Frankie Le Nguyen (31:05):

Yeah, so I mean a lot of M&A teams are not necessarily just m and a, they also do investments. So we got warm intros primarily, so we never go out cold. We got warm intros either from our investors or someone from the industry. 

Pablo Srugo (31:18):

And You identified people who thought who would be strategic to your product or just places you wanted to work? 

Frankie Le Nguyen (31:25):

Yeah, so products. So we targeted the financial analytics companies, which ended up being the buyer banks which ended up being way too big and Canada very quickly. And then exchanges. And so the strongest strategic fit is with financial, sorry, blockchain analytics companies because they could use our know-how to differentiate from their peers. And so that's how we went across it. But, so in terms of outreach, it's getting warm intros, building out of funnel doing calls very much similar to a fundraiser, but instead of looking for a few set of winners, you're looking for one. And in the end we had two offers. And we were seriously talking to maybe four companies in the end, out of a list like top of the funnel of maybe 60.

Pablo Srugo (32:12):

And who, who ended up acquiring? Was it a series A B company? 

Frankie Le Nguyen (32:15):

Yeah, Merkle Science. That is the number four challenger in the blockchain analytics space. So behind TRM optic and chain analysis, the value was in being able to bring in our know-how to differentiate from the other three, but also because they're a Singapore company, they wanted to expand to North America to win over customer logos in North America. And so acquiring a North American team fit their narrative. And from what I understand, they closed quite a few of the logos they wanted to close with in the last six months.

Pablo Srugo (32:40):

Did the fact that you were a smaller team make it harder to act or easier? I could see both sides to getting acquired.

Frankie Le Nguyen (32:48):

Yeah, I think it was easier for a smaller scale company because startups don't necessarily need another team of five to eight engineers ready to go versus a Coinbase or a Binance or whatnot, which are the conversations we had, they were looking for like, you know, teams of size where they can- it's a cheap talent acquisition tactic for them. 

Pablo Srugo (33:08):

And when you went to acquire that end buying, given that you're a small company, what was your story? Was it like, hey, we're for sale or did you still go with this like strategic kind of investment?

Frankie Le Nguyen (33:17):

No, it was strategic. We were trying to sell to them as a customer. 

Pablo Srugo (33:21):

Okay. Okay. So you had some pre-existing relationship

Frankie Le Nguyen (33:25):

That And we were trying to, yeah, for all the four we had a pre-existing relationship. I think it's very rare that a buyer will come out of the woodwork and make a bet on you without knowing you beforehand. Like we've known each and every single one for months or years. 'cause They have an execution history that they can rely on as opposed to just meeting code.

Pablo Srugo (33:45):

And without getting too specific on numbers, like I'm curious more than anything on the structure of it, like cash stock, earn out, et cetera. And then how much, how much you were able to return to the investors like you 50%, 100% percent. Like, or, or whatever it was?

Frankie Le Nguyen (33:58):

Yeah, so we were able to return almost 40 cents on the dollar to our investors. My co-founder and I walked away with, let's say, a year's worth of runway. But the main thing was having the team have a home and be able to find roles for them where I think that was super important for my, my co-founder and I that they were in roles that they were happy with and they continued to work together and, you know, be able to to have that narrative was more important. So we didn't walk away with a ton, but we walked away with freedom, which is a big thing. Financial freedom for a year, which is not much in hindsight, but enough to ask important questions.

Pablo Srugo (34:36):

No, but you know, I said it before and I'll say it again. Like, you go out and you say, oh, we got 40 cents to the dollar. You're like, okay. But the reality is like when you are facing what you're facing, which is a product that for whatever reason, ultimately didn't take off getting any sort of transaction done, that is not a wind down. Especially when it's somewhat strategic and the team keeps going and maybe even the product keeps going depending, but just, that's a big, that's a big deal. It's, it's, it's a big win given the circumstances. And exceptionally hard to do. Like, it's actually very hard to do. 

Frankie Le Nguyen (35:08):

It’s very hard. It's with mixed emotions 'cause you don't count it as a win. But I think what you do is definitely show up your fiduciary duty, really strong and you build those relationships. 'cause as VCs, I know that I'm gonna bet on someone that I believe in. And so the relationships are super important for me. And doing the right thing and showing up with my values. Even though personally, financially it wasn't necessarily the greatest homer.

Pablo Srugo (35:35):

Perfect. Well let's stop it there. maybe I'll ask just one more question, which is, you know, given the journey given everything you saw at, at Entrepreneur First on that side, but then the journey when you actually went into it, what's some of what's maybe the biggest lesson for you or for other founders that you have now kind of looking backwards

Frankie Le Nguyen (35:54):

And I think some of this will come off as like you've heard it before, but there's nuance, right? So what I really wanna harp down on is: validate the willingness to pay continuously and rigorously. So like, it's not the checkbox exercise of, okay, I validated that people went to paper next. Like what's the next risk? Like it's so fickle, it's ever changing. And so continuously validate that. And similarly, like we positioned a product that was not on purpose but just was really tied towards a bull market. And I think Rob mentioned this in one of your other interviews,  focus on problems that are resilient to market cycles. Like our compliance value proposition towards financial institutions. And blockchain analytics is important regardless of whether it's a bow or a bear, right? And so there's probably a higher willingness to pay, but there's still a willingness to pay.

Frankie Le Nguyen (36:42):

What we did solve was a hair on fire problem in terms of impact, but not one in terms of urgency. It's a must have, but for the future when it goes wrong, not right now. So I would've spent more time shifting and highlighting what immediate tangible value it can bring to a user. Talk about immediate threats that they can span from their control over their wallet, similar to what they would have with their bank account and address. Like today's problems, not later on. We talked a lot about channel risk. So relying on one partner is like a big no no. Something that I learned the hard way. We talked about aligning your values with your customers. So like really making sure that you obsess and feel good about obsessing. 'cause It's gonna be a really tough road if you obsess, but you hate yourself.

Frankie Le Nguyen (37:27):

Not this, you know, I'm not saying that I hated myself, but I wasn't necessarily aligned. Like I remember walking off on panels and doing other podcasts that were in that space and being like, who the hell was that? Like, what was that? You know? And that felt so ick and it hurt inside, right? And I think I'm someone who's very mission driven. I think a lot of founders are, some people, some founders are able to put a mask on all day and be Like I can do it. But I'm not one of those. And then failure to build a community for B2C products. Like that's something that we, I mean this is very specific to that. That's something that we failed to do. Yeah, I mean I'm sure there are others. 

Pablo Srugo (37:59):

That's a lot, man. <Laugh>. Well, Frankie, thanks so much for sharing your story with us, man. It's really appreciated. a lot of people- yeah, I hope it helps <laugh>, you know, happy to share their wins, but not not their losses. And like I said, I don't think this was a full loss by any means,, but appreciate the candor and I know these sort of stories help so many founders. So thank you.

Frankie Le Nguyen (38:17):

Hope it helps and glad to be on the show.

Pablo Srugo (38:20):

You remember like the first person who told you about Bitcoin, the first person who told you about Uber? You want to be that person because being first is cool. So be a cool person and tell your founder friends, send it to them on WhatsApp. Put it in a WhatsApp group, put it on a Slack channel. Let people know about the show. Let people know about this episode. Don't let somebody else beat you to the punch and share it with your founder friends first, remember what Ricky, Bobby said. If you ain't first, you're last.