Nathan McCauley: From Early Employee At Square To Raising $57 Million To Keep Institutional Investors Safe With Crypto Investments

Nathan McCauley is the co-founder and CEO of Anchorage which is a crypto-native digital asset custodian that uses modern security engineering to help institutions safeguard their investments. The company has raised over $50 million from investors such as Blockchain Capital, Khosla Ventures, SV Angel, Andreessen Horowitz, and Polychain to name a few. Prior to this Nathan McCauley was an early employee at Square.

In this episode you will learn:

Launching a startup in a highly regulated space
When you don’t need an MVP
The advantages of taking on a very hard business
What may be in store for crypto
How Anchorage has changed digital currency trading

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About Nathan McCauley:

Nathan McCauley is the CEO and Co-founder of Anchorage, a leading provider of crypto custody for institutional investors and funds.

Nathan McCauley started his career at Arxan Technologies, where he worked on anti-reverse engineering and key management for commercial and military applications.

As an early employee at Square, where Nathan McCauley worked on the infrastructure security platform now used to move over $80B in annualized GPV.

Nathan McCauley led the team that developed and operationalized a new industry standard called PCI PIN on Glass, opening Square to multiple additional international markets.

At Docker, Nathan McCauley built and led the security team, which developed code to help secure one of the core underpinnings of modern infrastructure: containers.

Nathan McCauley is a leader in the field of security engineering and has worked extensively on software security in adversarial environments and filed patents for mobile security innovations he designed and implemented.

Projects Nathan McCauley maintains are industry standards for security, including the Notary project, accepted by the Cloud Native Computing Foundation.

Nathan McCauley serves on the Board of Directors for the Vendor Security Alliance.

Connect with Nathan McCauley:

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FULL TRANSCRIPTION OF THE INTERVIEW:

Alejandro: Hello everyone, and welcome to the DealMakers show. Today we have a founder that is going to teach us a lot about crypto. I think that there is a lot in about this space, a lot of hype, a lot of momentum going, and I think that we’re going to be able to filter through some of the noise with the guest that we have today on the show. Without further ado, Nathan McCauley, welcome to the show today.

Nathan McCauley: Thanks a lot for having me. I’m looking forward to it.

Alejandro: So originally born in Indiana. How was life growing up there?

Nathan McCauley: I grew up in Indiana, a small town. I spent some time in a town of 20,000 people all the way down to about 150. So it was a very small rural background. My parents worked at factories and working-class, blue-collar jobs. So moving to San Francisco and getting to be part of the startup scene was an interesting change. I still look back fondly on my upbringing. I appreciate the work ethic that came from that. But now, I’m enjoying being in the startup team scene here in San Francisco.

Alejandro: And computer science. I understand that you came across this love for computers and software development while at University. So, tell us about this.

Nathan McCauley: Yeah. I had always been interested in computers. I think this is a very common story. I decided by default to study computer science in college. That’s where it solidified that I wanted to build a career working with software, working with building systems. Just the amount of creative whitespace that you have within software development was exciting. So it was very good to study that and then be able to transition that into a career.

Alejandro: There was not a lot of software development companies and tech companies there when you were looking at entering the labor market. But I understand that you started as an intern. Fortunately, that company had an office as well in San Francisco. So that was like the bridge.

Nathan McCauley: That’s right. I found a company based out of Indiana, actually even before I got the internship. I looked at them, and I noticed that they had an office in San Francisco. So the plan was to get an internship at this company and then do a good job at that internship. Then, hopefully, after graduation, they would move me up to San Francisco. Sometimes, a plan works. I worked as an intern there at a company called Arxan Technologies. Then after graduating from University, I moved out to San Francisco and started with them. That job ended up being a very interesting job. It was a deeply technical role where we were focused on a sub-field of software security called anti-reverse engineering. The whole goal of it is to take intellectual property that might be in the hands of someone who wants to steal it and figure out ways to protect it. There are interesting applications for it. It spanned anything from say, software protection for military applications if you have a military device, be it a tank, or jet, or something like that, that might go down behind enemy lines. You don’t want whoever comes into possession of that technology be able to figure out how it works. We worked on those kinds of use cases. But it turns out that the solution to those kinds of use cases is the same kind of technology that is needed for anti-cheat in video games. So I got to work on some truly blockbuster releases of video games and got to help protect those assets against cheating, reverse engineering, those kinds of things. Notably, within that, one of the areas that I focused on was cryptographic key protection. From the very beginning of my career, I was focused on protection of cryptographic material, which, as we’ll get to later, ends up still being what I’m thinking about on a day-to-day basis.

Alejandro: What do you understand as cryptographic material?

Nathan McCauley: Sure. The way to think about it is cryptographic material are these secret bits of information that are used to protect data. Those could be encryption keys for encrypting other sensitive, personal information. Those could be signing keys that are used for internet infrastructure. Or within the crypto space, which we’ll spend some time talking about, they’re actually used to control crypto assets. So if you’re investing in bitcoin, your investing theorem, any kind of cryptographic assets, or a crypto asset. At the end of the day, what you need to protect is the key material that is used to control that asset. My current company, Anchorage, that’s what we focus on as our bread and butter is protecting those keys so the institutional investors can safely participate in the digital asset class.

Alejandro: We’ll talk about that in just a bit, but tell us about why you made the move to Square. What happened?

Nathan McCauley: It’s an interesting story. I was working at Arxan, happily plugging away there, and enjoying the technical challenge that I was facing. But I ended up meeting, who would end up becoming my boss at Square, this individual names Sam. I met him at a bar. We were at a security meetup. I happened to meet him. I had been seeing Square from a distance. This time it was still really small primarily used for transactions on Craigslist. I looked at them, and I was like, “That looks like a difficult set of technical problems that you’re solving.” Sam said, “Yes, it is. Would you be interested in joining?” I got to be one of the early employees at Square. It was a fun ride to get to be there in the early days. At that time, there was not even an encrypted card reader. The security team was truly in its infancy. I was the first person Sam brought in. I got to see it grow from 40 folks up to 1,200 by the time I left. I got the folks on a bunch of different stuff at Square from an encrypted card reader, that first device that we ended up manufacturing in China. With my friend Diogo who I ended up starting a company with later on, we worked on the initial factory buildout of the encrypted card reader at Square. So we got to go to China, set up the factory assembly lines, and do cryptography key management truly in an adversarial environment. That was a fun project, and from there got to work in a bunch of other stuff. One of the interesting ones was that I got to work on acceptance of PINs on mobile phones. This is a project that Square led the way on in the industry, which was to be able to accept PINs on mobile devices. But it was a whole security buildout plus a regulatory buildout. That has recently been passed as a PCI standard. The work that I got to help initiate there and work on in the early days has now been delivered. So that was a really big win for Square at large, but also the security team. I was really proud to get to be a part of that project.

Alejandro: And here, obviously, you have the opportunity to see a real rocket ship. You join with about 50 employees, and now the growth is unbelievable what the company has experienced. You experienced that from an engineer perspective. But I guess from a business man’s perspective because now you’re running your own business, and you’re able to capture some of those learnings that you saw there. What was it like to be part of a rocket ship like that?

Nathan McCauley: It’s a great question. There are some things that are obvious, and everyone understands, and then there are aspects of it that are surprising to many people. The first one, I would say, is being in a company that goes from 40 to 50 folks to 1,200 over the span of four years, that growth rate is just astronomical. Just as children, when they’re growing up experience growing pains, organizations like Square have to go through significant growing pains as well. When you’re hiring more people, building up the communication systems that allow the company to operate and function, that’s interesting. Some of those growing pains that we went through at Square were pretty painful. Some of them just happened transparently and easily. One of the things I would say there is that the leadership team at Square, Jack, especially, and then Keith from the operational business side. Much of the engineering leadership did a very good job with transparency. Internal transparency about everything that was going on, about all the projects that were going on that allowed us to share information widely and have everyone truly understand the nature of the business. When everyone understands the nature of the business, it makes decision-making very easy because what you need to work on and what you need to focus on are directly well understood, and there’s a shared consciousness that everyone has about here’s what’s important; here’s what matters. That’s something that I think I try to emulate at Anchorage is having that notion of internal transparency across the board. The other one that ended up being helpful at Square, especially when you’re scaling to so many people in a short amount of time is this idea that ideas are what matter, and that execution is what matters—not status or position within the organization. Square did a very good job of having a—even in cases where there were hierarchies, hierarchies weren’t the way the decisions were made. Decisions were made by the people that work closest to the decision, and that almost, in some ways, decentralized notion of trusting each other to make the decisions. A security team was making decisions on their own. Other product teams were doing a very good job there and an overall method of operating that I found very helpful and inspiring.

Alejandro: Typically, for a company that is growing so fast, what were some of the pain points? I guess with that level of transparency, you were probably exposed to some of those. So what were some of those pains?

Nathan McCauley: Sure. I think some of the pains were in bringing in a set of capable and experienced managers. We did a number of reorgs over the few years that I was there. Interestingly enough, the security team, ourselves, we didn’t have that many of the orgs. But across the org, just as the organization scales, you naturally end up needing to do a reorganization such that you are continuing to focus on the right things and to make sure that the team is set up for success. Square was designed-focused. That design focus was one of the antidotes that helped it not ship the org charge. That’s one of the troubles that a lot of organizations fall into is shipping the org chart. But the design focus really elab, “That’s not happening.” I think that was one of the things that was good, and I’ll make sure that some of the internal complexities that Square faced didn’t manifest into the product itself.

Alejandro: And Diogo, obviously. You met one of the most critical persons in your professional career. So what happened? How did you guys connect so well?

Nathan McCauley: We joined the Square security team that same week. From the beginning, we worked together on all the projects that we did at Square. That was almost like getting friendship forged and fired if you will because there were so many high-stake projects that we needed to work on over the course of many years there—everything from that encrypted card reader that I told you about all the way up to when Square brought on Starbucks as clients, and we all were heads-down working seven days a week for months to make that happen. We just bought it in a real way. We developed this professional respect that we were able to deeply trust each other, deeply trust each other’s instincts, while also making sure that we’re there to improve each other and to push each other harder, grow, and expand as much as we could. So that relationship that we developed at Square was something that has carried us through the rest of our careers that we’ve decided to join wagons and stay closely aligned.

Alejandro: Yeah. Yeah, and Diogo ended up becoming your co-founder as well. I think that you mentioned a world that is super important here, and it is trust. What do you think were the building blocks that really created that incredible amount of trust between the two of you?

Nathan McCauley: Yeah, and I think in many ways, counterintuitively, some of the trust came to fruition by virtue of being involved in stressful projects. A stressful project where you’re under a decent amount of pressure in order to deliver. You work well with people when other people are aligned on what needs to be done and aligned on how to work together well. So particularly those stressful projects where you come to rely on somebody and need to trust that they’re going to deliver their part of it leads to a relationship of trust because you can say, “Look. This relationship has been tested at the limits, and we have found that we work together well in the steady state, and we work together well when things are difficult, and maybe tiring, we’re stressed, we don’t know what’s going on. Then the other part there is that we are very good at doing all we can to remove ego from our decision-making process. It’s not to say that ego isn’t entirely removed from what we care about, but it’s particularly removed when it comes to how do we decide on what to do next. We take a logical and structured approach to how we make decisions. That mode of operating is important in security where security can’t be defined by someone’s preferences or how they want it to be built. It needs to be defined by an adversarial model. So the fact that we’re able to debate with each other about what is the relative value or downside of this business model, this business decision. We tested that through both technical projects and then increasingly through business projects where we’re able to argue both sides of any position. That helps us now when that comes time to make difficult decisions. We can remove our own identity from it and do everything we can to debate about that. That has yielded dividends here in our current company because the quality of decisions we’re able to make is so much higher because we are able to remove ourselves from it.

Alejandro: It’s not who is right and who is wrong; it’s like what’s right for the business.

Nathan McCauley: Exactly.

Alejandro: I totally get that. The two of you decided to make the move to Docker. Why?

Nathan McCauley: That’s right. Yeah. After about four years at Square, we had early on decided, “We work together well. Wouldn’t it be nice if we would have the opportunity to start a company together?” One of the nice things about getting to work at Square was that our work impacted a lot of people in that all of the Square merchants and users got the advantage of our technology, but we had developed such a good working relationship and had security expertise and security opinions that we thought could more generalize, and generalize to a broader swath of the market. The initial thesis was, find some way that we can have a larger impact in terms of taking our security opinions and allowing more people to benefit from that. As we looked at potentially starting a company, we came across this company that was exploding in popularity called Docker. After taking a hard look at it, we realized, “It actually makes more sense. Rather than starting our own company, why don’t the two of us jointly apply to Docker and go to a pre-product talent acquisition—join together, find a way to join up, and buildout the security team within Docker? We approached Docker together and said, “We would love to come in together and change the face of security at Docker as much as we can. There’s already a great start here, but there’s a lot more stuff that could be built, and we would love to have the opportunity to do that.” The folks at Docker obliged. So we joined up and got to spend the next three years building up the security infrastructure at Docker. That was a great time for us because the great news about Docker was that it was like I mentioned earlier, it was exploding in popularity. Many engineers wanted to use it. I think it’s still growing in its popularity. That’s all we’ve got to do is take our notions about how security should be done; secure by defaults; make things safe, not secure; all these kinds of ideas we were able to embed as much as possible into the Docker run time and to build the team there and the community because Docker’s open source project—many of the contributions on security didn’t necessarily directly come from us but from the wider community there. But we were able to set the tone where it was important. Now, Docker runs on a huge number of the workloads on AWS, Azure, and GCP. That optimization function that I was talking about earlier, which is like, “How do we optimize for maximum impact within the industry?” We’re able to do that within Docker.

Alejandro: What was the biggest takeaway from your experience and from these couple of years at Docker?

Nathan McCauley: There were a number of things we wanted to get out of Docker. The first one was, take our security opinions and get them broadly deployed into the ecosystem. That was successful by virtue of the fact that Docker was getting so popular. We were able to do that naturally. The other thing we looked at was, how do we use this opportunity at Docker? Square had been a consumer or B2C sales motion. Docker was going to be more clearly an enterprise sales motion. So we looked at our time at Docker as an opportunity to grow some skills that we didn’t already have—skills around go to market and marketing. Because security ended up being so important to the sales motion and to the marketing motion at Docker, we were able to embed ourselves into those teams and have it be a great education in how to do that. We’re both very grateful for the sales team at Docker and for the marketing team over there, allowing us to come in and teaching us a lot about the right way to do a bunch of this stuff. That was nice preparation for being able to start a company because one of the things that can happen with technical founders is that they know a lot about the tech, but they don’t know enough about other aspects of business. Docker provided us an education in being able to do some of those things, understanding how you do organizational mapping from a sales perspective, understanding how to make a differentiated marketing message. All of that was very helpful for us long-term and was a nice way to get some exposure to areas that we didn’t already have experience with.

Alejandro: And this was the immediate step to you and Diogo going out and starting your own business, Anchorage. Can you tell us about that moment where you guys were like, “Wow! I think there’s something here,” and to the moment where you’re like, “It’s time to give our notice and have this idea take a life of its own, and really go at it and take the leap of faith.” Walk us through that.

Nathan McCauley: Sure. One of the big advantages of getting to work on Docker, it was an open source project. Open source projects, if you get to be a core contributor to an open source project, you get some measure of notoriety within the marketplace. People know that you are the folks working on the security for an important project. Based on the strength of the reputation there, we were able to start consulting with some fledgling crypto hedge funds and to make sure everyone’s got the timeline right. This was late 2017, where a number of crypto hedge funds were getting started because of the mania that was going on around crypto in terms of big coin price going through the roof, a lot of other all coins coming into existence. A lot of people were looking to start crypto funds, but these were not necessarily technical folks. These were folks that were investors, but they didn’t know how to properly manage keys. So it’s this interesting situation where all the sudden, a bunch of people desperately need really good key management. It turns out that Diogo and I have been working together on security and key management for the last eight years. So it’s this very natural almost founder/market fit where exactly the thing we’re good at is now needed in the marketplace. So it ended up in relationships with the number of funds that we were looking to do—kind of consulting agreements with us like ask, “Can you give me advice on how to do this properly?” Enough of those started happening where we said, “I think this is a general-purpose solution that could get built here. We could actually build a technology stack that could allow them to safely hold their keys. We took a look at the marketplace. Whenever you’re starting a business, you need to look at what competitors are out there. What are the other alternative solutions? What we found was that it appeared that the institutional custody market was deeply underserved. What was passing for competence at the time, was this notion called cold storage. Cold storage is this simple idea where you keep a cryptographic key security—you keep a piece of data secure by turning off a computer. You keep the computer turned off, and that’s entirely your process. What we saw with crypto assets was institutional investors are going to want to do a couple of things. 1) They’re going to be able to run trade quickly. A custodian that’s holding keys on computers that are turned off is inherently going to have latency in order to their durability of trade. They’re going to want to be able to trade more quickly than that. Additionally, as the crypto asset classes evolving and growing, there’s an increasing need for assets to be live to be able to participate in networks. So think of this as, in traditional asset classes, you have things like stock dividends or dividend payments or coupon payments from bonds, other kinds of ways you can generate yield on top of your assets. Within crypto assets, there’s the notion of staking or voting in the networks, all of which in order to do it, you need to be able to actually use the keys. So it looked to us like this market is systematically underserved. Everybody is doing cold storage. There isn’t a truly institutional player that needs to exist. So everything comes together, and we’re like, “Wow. This is exactly what we’re good at. This is exactly how we can build up this company. Why don’t we do this? Why don’t we go ahead and raise money? So in late 2017, we end up raising money from Andreessen Horowitz and Khosla Ventures. They led our round, and then we brought in about 40 or 50 angel investors who would be able to help us with connections and bringing in various skill sets that we didn’t already have like a regulatory compliance and those kinds of things. We brought in a bunch of angel investors and got started. So based on all of that, I go, “Okay. This market dynamic exists. It looks like we’re going to be able to raise money.” So to your question earlier, it was like, “This is our time. We work together so well. We have the opportunity to start this company. The market needs a differentiated new solution. We’ve got an opportunity to do this. So we let Docker know that we were going to be going off on our own. Then we took the plunge.

Alejandro: I guess that the most critical decision when you’re starting a business is choosing wisely your co-founder. Here, you had a clear advantage. Sometimes, people need to take the plunge on maybe going at it with someone that they know for a couple of weeks or maybe months. In this case, you had the opportunity of choosing someone that you had been working with. As you were saying, in super-stressful projects and where you guys really trusted each other, it’s amazing that you had this long-term partnership, and working it well, too.

Nathan McCauley: It was special that we have that and the ability to—even during the fundraising process to bounce ideas off of each other, be in absolute sync on what we’re hearing from investors, how we can build this up. Then also, be excited about getting to know that you’re going to get to start a business with someone you’ve been working together for so long. You’ve built this rapport, this relationship. There’s an inherent excitement that comes from being able to say, “We’re going to cast out on a journey together.” It was an incredibly exciting time, and I’m really fortunate to have that relationship.

Alejandro: No, I’m actually quite impressed, and I’m sure that the listeners are also impressed with the fact that you already had those relationships before you even went at it with MVPs or anything like that. How did you know all these investors because you guys were on the engineering side, not so much on the business side? So how do you have access to all these top-tier, like Tier 1 we see in the Valley?

Nathan McCauley: It goes back to that transition out of Square. At the transition point out of Square, we consulted with a number of top-tier venture capitalists who had been investors in Square or were looking to be investors in Docker. Many people may not remember, but at the time, the security perception problem that Docker had was one of its most pronounced issues. So as part of the move, from Square into Docker, we ended up getting to meet a number of Docker investors, a number of Square investors. As we were going along at Docker, we did all we could to maintain close relationships with a number of the venture capitalists who were investors in Docker. They were interested in how we were doing and interested in what we were up to. The strength of those relationships was what allowed us to do that first fundraise. The other thing that was a big advantage here was that the product that we were looking to launch, the product that we were looking to build was a purpose-built product for institutional investors. So any conversation we were going into was both, in some ways, a pitch on “Invest in our company,” but implicitly, the venture capitalists that would invest in us knew that we would have product/market fit because they themselves needed the technology. They were looking to make crypto investments. They didn’t want to have to go get a safety deposit box or have their accounting team need to take control of crypto assets. So there’s a built-in understanding that what we were building would be directly useful for the VCs that we were pitching.

Alejandro: Yeah, because typically, fundraising, the way that I see it is as a sales process, as well. But in this case, it was an actual sells process because not only you guys were probably getting their funding, but then also potential customers.

Nathan McCauley: Yes. That’s right, and that continues to this day in that in many cases, any particular investor that we’re talking to, it’s easy to maintain relationships with them because they are looking for a custodian. They are looking for a counterparty to help them hold their keys, do that securely, and do it in a trusted way.

Alejandro: How do you guys make money, Nathan?

Nathan McCauley: Like I mentioned, we serve institutional investors, VC funds, private equity funds, family offices, and anybody that’s looking to hold very significant positions in crypto assets we’ll take them on. Right now, we charge BIPS on assets in our custody. We take in assets, hold them for you, hold them securely, allow you to state the assets, allow you to vote in asset decisions, and then in return for that service, institutional investors pay us a small percentage annually based on how much they’re holding with us.

Alejandro: You guys raised, first, 17 million, and then you raised 40 million. One thing that I thought was really amazing is that you didn’t even go through a product-type phase. Typically, people do the MVPs, then they validate, and they get the investors excited. In this case, you guys just went straight at it.

Nathan McCauley: That’s right. Straight out of leaving Docker, we raised 17 million from Andreessen Horowitz and Khosla. A big part of the reason for that was two-fold. This is a product category where a minimum viable product is totally useless. A minimum viable product that is supposed to hold 100 million in crypto is an absolutely irresponsible decision to make. So there was no universe where we were going to build a fledgling thing and then try to get institutional investors to put in hundreds of millions of dollars into it. So I always knew we were going to go from nothing to institutional impressive system right out of the gate. The other side of our business, in addition to all the technical sophistication that we have is the fact that we need to be a regulated entity. Regulated entities allow us to act at what’s called a qualified custodian. I won’t go too much into the legal mumbo-jumbo here. But suffice to say that we needed to go to a federal or state regulator, spend time with them, and create a regulated entity that was able to hold the assets. So it was not just technology, but also regulatory approval. One of the things that regulators like to see is that balance sheet so that they know that you can sustain operations; you can operate this. The pitch to VCs was, “We need to create a regulated entity, and we need to immediately hire a team that can go build out this technology. So this is not a case where we need a small fundraising round. Rather in order to even prove out this model, we need a substantial round to even get going and get us started.

Alejandro: Interesting. So why did you guys decide that the first hire that you needed to make—typically, in a company like this, you’re thinking about maybe legal counsel, maybe folks that are deeply rooted in operations. Here, you guys just went at it and got a recruiter on board as the first hire. What was that?

Nathan McCauley: That’s right. This is one of our contrary opinions that I swear by at this point. So we had a very clear vision of exactly what needed to get built from a technical perspective. We knew that was going to take a team of 10-12 engineers plus a support staff in legal, compliance, marketing, sales. All of these were going to be directly strategic hires that we needed to build up. So it was very clear that the first, most important thing was going to be team building. From the very get-go, our first hire was this individual named Danny. Danny was a recruiter that we had worked with at Docker, and we decided to bring him in as our first hire to help us build up the team because we knew there was no way we were going to build up the product that we needed unless we had a capable recruiter straight out of the gate. So Danny came in as employee #1, helped out with all of our recruiting and team building, has helped us go from Diogo, me, and him. From there, all the way up to now we’re 50 people two years later. He’s been instrumental in that. The other advantage of having somebody like that from a very early time is set up of all of the threshold-issue-type things that you need to start a company. Payroll, benefits, office, operations, all that kind of stuff was able to be handled by Danny. That’s something I now regularly recommend to other founders who are getting off the ground is employee #1, have them be a jack-of-all-trades who can specifically focus on recruiting but can help out in a number of other areas, as well. That has been a force multiplier in terms of our ability to execute on this business.

Alejandro: Where do you think that crypto—because, with crypto, there’s a lot of noise. There are a lot of bad actors. There is obviously, SCC catching up. All the ICOs and subpoenas left and right. Where do you think the crypto space is going as a whole?

Nathan McCauley: It’s a great question. One of our early understandings was that regulatory clarity and regulatory compliance for this company was going to be mission-critical from the very beginning. So many startup companies do all they can to avoid going after clear regulatory guidance and do what they can to skirt around regulations or something like that. Our goal from the beginning was, “We’re going to be the institutional player. We’re going to be the well-behaved regulatory player in this space.” That early strategic decision led to a lot of other things within the company where we decided, “We’re going to build out an entire legal and compliance team here that is going to be super enabled to not only help us strategically run the company but also would be an advocacy force and help us develop good relationships with state regulators, federal regulators, etc. The way we looked at it was we’re going to need to have what amounts to a small law firm inside the company in order to deal with all the legal and regulatory strategic questions that we need to get answered, whether that is understanding how to launch this business line or whether that is actively advocating with the SCC. We knew that this was always going to be a super strategic area for us. So I have now gone to the SCC dozens of times to explain cryptocurrency to them, understand the deep rules around crypto custody, and how all of that can map into regulations that were written in the 1930s and 1940s. Frankly, it is a lot of difficult questions that need to get answered. So I’m not surprised that it’s taken a while to get all this stuff figured out. It is quite complex, and the role that the SCC plays within the U.S. on keeping investors protected at facilitating capital formation, they do not take it lightly, and they do a good job of being informed and understanding what’s going on. So we continue to engage there and stay integrated with how they’re thinking because we think it is super important for us.

Alejandro: It’s quite an interesting journey, the one that you guys are in because you have two challenges. One is the challenge of building a business from nothing, which is unbelievable. Then the other challenge is you’re dealing with that uncertainty. Then the second uncertainty is the fact that you have the regulatory hurdles, as well. It’s too much uncertainty sometimes. No?

Nathan McCauley: You can look at the uncertainty as a blocker, or you can look at it as a brick wall that only few will actually get through. So in many ways, starting a difficult business ends up being good because it means that not many other people are going to try to do it. The fact that you have a technically sophisticated asset class that takes an incredible amount of engineering discipline to hold accurately, securely, and correctly.

Alejandro: Yeah.

Nathan McCauley: And you have this whole set of legal and regulatory questions that you need to get answered means that it’s not for the faint of heart. But what motivates us each day is that we believe that crypto assets, cryptocurrency, blockchains have an enduring place in this world, and we want to help enable it. There are many businesses out there that address a specific need in the market that is relatively straight forward to address. We’ve always thought like, “How do we seek out the nearly impossible problems? The ones where there isn’t a clear black or white answer; it’s all shades of grey, and you have to thoughtfully think about how to address it. Diogo and I have always strived in those areas where there’s not clarity, there’s no certainty, but at the end of the day you know that on a long-enough time horizon, what’s happening here is really promising and really powerful, and it’s a pleasure to get to be a part of that.

Alejandro: Yeah, absolutely. Now, there are a lot of people that are saying that we are coming out of one of the longest bull runs on the market in history. I’m wondering, what do you think is going to be—how do you think crypto assets are going to react when there’s a market turnaround?

Nathan McCauley: At the first level, the way I’d answer that is that if I had a specific crystal ball around “Crypto assets are going to go up; crypto assets are going to go down,” then I probably would have chosen to be a crypto fund manager. I, myself, do not have particular opinions on which way the market wanted to go. However, I think that crypto assets as an asset class are going to have enduring value is something I’m highly convicted on. Therefore, it makes a lot of sense to start a company like Anchorage because Anchorage stands to benefit from all of the crypto assets doing well. It’s not as if I, as the co-founder of Anchorage, need any particular assets to do well. All we need to win as a business is that the entire market does well. We have two roles planned out. One role is to take a good, hard look at what’s going on right now and do a good job of securing assets and doing that. On the other side, there’s a real sense that we need good actors within crypto. The more good actors we have in crypto, the more there is a chance that this whole space will evolve, grow, and expand. So we do not take it at all lightly that we have a responsibility to carry crypto forward in meaningful ways.

Alejandro: Makes sense. One of the questions that I typically ask the guests that come on the show is knowing what you know now, Nathan, if you could go back in time and have a conversation with that younger self, with that Nathan that was about to take the leap of faith, what would be that piece of advice that you would give to your younger self before launching a business and why knowing what you know now?

Nathan McCauley: That’s a great question. The first thing that I would say is, think about hiring senior leaders even earlier than you expect. There was a bit of a tentativeness to bring in truly senior folks early on in the company. We have not corrected that and hired some really great leaders within the company. What I would have said to that younger person is, “Do that even earlier because the ability to scale up the organization is even more than you can imagine when you have great folks on the team, and particularly in cryptocurrency where you need top-notch people in every position. Whether that’s top-notch people in legal, compliance, sales, and finance, everyone is simultaneously running the company, but also advocating for the company. So you need a rockstar truly great leadership team. I would do that much earlier in the process than we did.

Alejandro: Yeah. I think that’s very profound Nathan because, at the end of the day, time is all we’ve got. So having people that help to reduce the steep learning curve is definitely something that I think is critical. So, Nathan, for the folks that are listening, what is the best way for them to reach out and say hi?

Nathan McCauley: I’m available on Twitter @nathanmccauley, but even better if you’d like to get in touch and hear more about Anchorage, please go to Anchorage.com. You can learn more there, and you can express interest through our form on the website.

Alejandro: Fantastic, Nathan. Well, thank you for being on the DealMakers show today.

Nathan McCauley: Thanks so much for having me. I really appreciate it.

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