Yan Zhao expected she’d have a career in medicine like both of her parents. But along the way, she discovered her real passion was for business and entrepreneurship. Her latest venture NYDIG has raised $400 Million from top-tier financiers like First Foundation, Starr Companies, Liberty Mutual Insurance, and Soros Fund Management.
In this episode you will learn:
- How to transition from one culture to another
- Learning to follow passions
- How to take on new challenges when you have little knowledge of a subject
- Yan Zhao’s book recommendations
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About Yan Zhao:
Yan Zhao is the President of NYDIG. She is also a co-founder of Stone Ridge. Prior to her role as President of NYDIG, Yan served as CEO of Flourish, a fintech platform started by Stone Ridge, and before that, Head of Reinsurance funds at Stone Ridge. Yan holds an MBA from Harvard Business School and a BA in Economics from Harvard University.
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Connect with Yan Zhao:
Read the Full Transcription of the Interview:
Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. I’m super excited about the guest that we have today. We’re going to be learning quite a bit of scaling; we’re going to be learning quite a bit of bitcoin, and then also pivots, and you name it. So without further ado, let’s welcome our guest today. Yan Zhao, welcome to the show.
Yan Zhao: Thank you so much for having me. I really appreciate it.
Alejandro: So originally born in China. How was life growing up, because I know that you moved quite a bit, but tell us?
Yan Zhao: It was fantastic. I had a lot of family around. China is very family-oriented. My parents and my grandparents all lived in close proximity. But when I was five, my dad decided to come to the States to pursue opportunities to do research in Texas. So he left, and a couple of years later, my mom and I followed him. It was a very big change for a seven-year-old, for sure.
Alejandro: Yeah, no kidding. I guess making new friends and a new school, everything. I guess to a certain degree, that has probably shaped your personality, too, and dealing with uncertainty, which there’s a lot when you’re building and scaling a company. So how did that impact you?
Yan Zhao: Yeah, absolutely. That’s a great observation. I moved quite a bit, and I do think it definitely shaped how I deal with uncertainty and how I deal with new situations. Coming to the States as a seven-year-old, I didn’t speak the language at all. I didn’t know anything about the U.S. except that my friends told me that all the roads were paved with gold here. When I came, I realized that part wasn’t true. I had to learn very quickly. I jumped right into elementary school. I didn’t speak any English. I had a very different school system and style, so I had to learn and adapt very quickly. But it was a fantastic learning experience. I was in a very diverse elementary school where 98% of the students were Hispanic, were on free lunches, and so it gave me an appreciation for the immigrant journey and how much people were excited and delighted to be in America. I think I really have that deep appreciation because I came from somewhere else.
Alejandro: 100% the land of opportunity. The American dream.
Yan Zhao: Absolutely.
Alejandro: So, good stuff. Also, as a Spaniard coming to this country, too, with a backpack, I can totally relate. In your case, I know that in China, too, the culture is very much towards education and doing good stuff then in the professional world, so I’m wondering, as well, because you landed in Harvard, so how important was the whole education and getting to the best schools and all of that, as well, for you, coming from China and with that type of culture as well?
Yan Zhao: Just like the stereotypes, my parents had high expectations for me. They were both doctors in China. They can be doctors here, but they were doctors in China, and my grandparents were doctors, as well, so all of my life, I’ve been groomed to become a doctor and to achieve high levels of academic success. One thing that I didn’t realize until late high school and really started to grow to appreciate throughout college was that the Chinese way of thinking about achievement, in some ways, was very linear and limited in scope. It was: get straight As, get the best grades, do well in school, and that’s it. And follow your own path, get a great medical school, be a great doctor, and just rinse and repeat, and do that. In late high school, as I started to see what my friends were doing, and especially in college, I really started to realize that in America, wow, in this land of opportunity and a land where entrepreneurship was in the blood, it’s not just about getting the best grades and doing exactly what was expected. It’s really about following your passions, developing expertise in something outside of the classroom, learning things outside of the classroom, and bringing teams and bringing people together to try to do something around that passion. I thought that was incredibly valuable, and ultimately, that’s what led me to Harvard. I think that it was really helpful to have had different passions. Then once I got to Harvard, I realized, “Gosh, I am so far below in achievements and everybody else here who were world-class athletes or musicians or whatever.” It really opened my eyes to what was possible.
Alejandro: Tell us about the switching of different degrees, as well, because that was also part of the journey at Harvard.
Yan Zhao: It really was. I went in very solidly a pre-med, very much as expected. I spend my high school years doing science research. It was everything and all that I knew and in a class of Asian fashion. You can either be an engineer, or a lawyer, or a doctor. And doctor was my destiny. I got to Harvard, and a couple of things happened once. I’m just not very good at chemistry. I’ll admit that. I knew that was not my destiny. I never really loved the sight of blood, so I knew that was a problem. But ultimately, once I rebelled against it, once I got there and saw what everybody else was doing, I didn’t want to just follow a path that had been laid out for me since my birth. I really wanted to discover my own path. That was scary because nobody in my family had known anything other than medicine. They couldn’t advise me. So I looked around. This sounds funny, but at the time, during the fall of every year, there’s a Tempest Recruiting for the consulting firms and the thinking firms. I saw a lot of my friends dressed up in suits, walking purposefully, looking extraordinarily confident, going into these things that looked very professional, and I thought, “I want to figure out what they’re doing.” So I bought a suit, and I went to some of those meetings, and that’s how I ended up on the economics track learning about business.
Alejandro: Amazing. Obviously, business led you to Morgan Stanley. It ended up you wearing, also, the elegant attire to the office every day. Being in Morgan Stanley was pivotal for you because also, this allowed you to meet Robert Gutmann, with whom you would end up working. But it took you a little bit because right after Morgan Stanley, which you actually got to experience the financial crisis there, you ended up going back to Harvard to do your MBA, and it was like right after Harvard where you received that phone call from Robert that changed everything. So how was that for you?
Yan Zhao: I joined Morgan Stanley after school to be a trader, which I knew nothing about except what I saw on TV about people shooting in the pit. It sounded exciting but also terrifying. I was incredibly shy. During my childhood and throughout college, I was very shy and very quiet. I hated talking to people, and I thought, “Boy! This would really challenge me being in the midst of an extremely male-dominated profession and having to stand up and be aggressive. Obviously, I knew I would meet really wonderful and smart people. So I went to Morgan Stanley. It was two wonderful years, had incredible mentors, including, like you mentioned, Robbie Gutmann, who ultimately led me to Stoneridge and NYDIG. But it was during the financial crisis, and it was a tough time for being on Wall Street, generally. I always wanted to be in finance. I thought it was interesting; I thought it was exciting. Certainly, my first year, I made more money than my parents had ever made combined, and that was incredible to feel like I could start to provide for my family. But after a couple of years, I realized, “I don’t really know what I’m doing this for other than it’s fun, and I’m collecting a paycheck, but ultimately, am I building something that is lasting that I can point to with pride and say, ‘I was part of that. I built that.’” it didn’t feel like I had that opportunity at Morgan Stanley, as wonderful of a place as it was. So I went to business school to figure out, again, I reset my life once from pre-med to finance. Let me figure out how to reset my life again and see what do I mean by I want to build something lasting? How do I go about doing that? So I went to business school. I met a lot of people and a lot of entrepreneurs. I became a consultant to learn the basics of business. How do I tell a story? How do I convince people to believe in the message that I’m trying to share? After a year or so, Robbie called me. We had been in touch and said, “I’m starting this company called Stone Ridge with a gentleman named Ross Stevens, who is the founder of Stone Ridge. We’re looking to build a different kind of financial services firm whose mission is financial security for all. The values of Stone Ridge are focused on: be humble and be kind.”
Alejandro: I love it.
Yan Zhao: Which I didn’t think there were financial services companies with that kind of value system. I thought, “This is something that I can really get behind. It leverages my skills, and I believe in it, and I’m passionate about it.” So I quit my job at BCG and moved to New York to start this with them. It was a little bit scary. Again, entrepreneurship is not something that runs in typical Asian families, and my parents said, “Are you sure you want to give up your great, stable job?” But it was really an incredible strength. I joined with no job description. They basically said, “You will come and do things, and we will figure it out together.” To me, that was so much fun.
Alejandro: What were the early days like of Stone Ridge?
Yan Zhao: It was the most fun, probably the most stressful, most dynamic I’ve ever felt. I literally quit my job on a Friday, moved all my stuff from D.C. to New York over the weekend, and started on Monday, and just worked straight for about a year and a half. We had to do everything. We had to set up the office, build the monitors, get the printers. I designed our website. I designed our business cards, and we had a really ambitious goal. We effectively moved into our offices at the end of September in 2012, and we wanted to launch the first fund to offer to financial investors in February, so less than five months away. Then we wanted to launch our second fund two months after that in April. We had a small team of about 13 to 14 people. It was a mass fringe to build all the materials, build the relationships, go out to talk to investors, and do the fundraising. We got to February 1, managed to launch our first fund. It was a reinsurance fund. Reinsurance is insurance for insurance companies, and the fund, for the first time ever, allowed normal investors to buy in mutual fund formats an in-depth fund of what are known as catastrophe bonds. These are bonds that are indexed to whether a hurricane happened or an earthquake happened. It’s a really interesting novel source of returns that is completely uncorrelated to stocks and bonds. We loved that we were able to provide this fund and this access to not just hedge funds, pensions, and diamonds, and institutional investors, but be able to provide it to ordinary investors as well. So that was launched February 1, and I knew nothing about reinsurance when I started, but over the past five months, it’s been all my waking hours thinking about it and running it and ultimately got the privilege of running that fund and building that fund for five years.
Alejandro: What ended up becoming the business model of Stone Ridge for the people that are listening to really get it?
Yan Zhao: Stone Ridge Holding Group now is a holdings group of financial services and technology companies. We have multiple operating businesses. At the time, our first operating business was an asset manager, and there was a very simple idea of indexing things that had never been indexed before. We had a great deal of humility, not just as part of our values but as our investment philosophy that it’s really hard to be as a stock picker and outperform the S&P 500 Index. So we thought index funds were a phenomenal invention, and we wanted to help people access not just stocks and bonds but be able to access other alternative asset classes. Ultimately, the reason why we think that’s important is diversification helps build a lot more resilience in your financial portfolio, and we think that’s important for people heading into retirement and building wealth throughout their lives.
Alejandro: Obviously, out of Stone Ridge, there have been not just one but different companies that have been born under the umbrella. The one that you are right now embarked on, which is NYDIG, but also, there was a fintech company that you guys built that ended up being sold. So what happened there?
Yan Zhao: Our asset management business, which was our first operating business, primarily worked with what are known as registered investment advisors. These are companies of financial advisors who help people invest their savings. We worked with them because we thought they were very aligned fiduciaries who could help their clients think through more sophisticated strategies like the ones that we were offering. We thought they were doing fantastic work for wealth management. So we worked with them really closely. A few years in, one of the things that we realized was, there was this huge movement in the fintech space of robo advisors and self-directed investment opportunities online. Some of these wealth managers were a little concerned. They were thinking, “Look, we don’t have a lot of technology to help us compete against these robo advisors, especially for a very tech-savvy, younger generation of people who are increasingly inheriting wealth. So we thought it would be really interesting and beneficial to help create fantastic technology to help financial advisors and their clients with many different things. We launched an operating company within Stone Ridge that built technology to help financial advisors and their clients, and we started off with a cash management product, so helping them. A lot of these clients had cash, but it was just sitting at a bank earning no yield at the time. We were in a world that had yield and thinking about how to optimize that cash, how to help them and do it in a way that’s seamless and streamlined. Then ultimately, building additional products on top of that to help people’s financial lives. That was really the goal of that product. I had been running reinsurance funds for five years at the time. I had an incredible team. Part of my goal was to give the team an ability to grow and rise and run the business without me. Part of it was that I thought that fintech was just an incredible space, and I wanted to be part of it. So I jumped into running this company, my first time running a technology company. I didn’t know what I was doing, but fortunately, again, I had an incredible team of engineers, product managers, and legal folks who built this product from scratch over the course of a few months. We launched, and then we reached financial advisors who collectively managed over $600 billion of assets. So we’re really proud of what we accomplished. Three years in, the last year, we sold that company to Mass Mutual, who is a close partner of ours. They wanted to keep growing their presence in the financial advisor’s space, so it was a fantastic fit.
Alejandro: That’s amazing. So, obviously, that gave you the civility to the full cycle, and as part of this initiative with Stone Ridge, you had the incubation of NYDIG, now which is a company requiring most of your time. Tell us how NYDIG came about and you got involved in NYDIG?
Yan Zhao: While I was building this other fintech company, my co-founder, Robbie Gutmann, started NYDIG, also within the Stone Ridge umbrella. Ross and Robbie were the far more impressive ones when it came to bitcoin. I didn’t really understand and get into the bitcoin space until the last year or two. Robbie was one of those folks who bought bitcoin in 2013 off of Craigslist, and he was always an early adopter. They were passionate about bitcoin, about providing access to bitcoin because we thought of it as an asset that was incredibly diversifying. That was what we called the heart of asset as in it really is anti-inflationary. There can only be 21 million bitcoins ever in existence, especially in the dramatic money printing world that we’ve been in over the past couple of years. We thought that’s an incredible asset for people to own. But back in 2016, when we were first talking about this, it was a very different world. It was kind of a Wild, Wild West. There were consumers asked to let consumers buy bitcoin, but it wasn’t seamless, but there really weren’t institutional players out there, people who can help insurance companies or public corporations or endowments or pension funds get access to this asset class. So we thought, “We can bring together the right team with the financial services expertise and acknowledge expertise from the regulatory expertise, and we can build the technology and the infrastructure from scratch ourselves to serve this industry. So let us do that. Starting in 2017, we launched NYDIG. It was the first truly institutional player serving only institutional clients. We had, from the beginning, a big board auditor. We built 100% cold storage. We got all the required regulatory licenses. So we think of ourselves as a full-stack, institutional grade servicer for our clients. That was how we got started. 2017 was an interesting year. The bitcoin prices were going up. There was much more talk about it. It was starting to become more in the public consciousness. Then, of course, there was crypto winter. Bitcoin prices crashed. Nobody wanted to buy bitcoin. All the doubters were like, “See, we told you bitcoin isn’t really a thing.” But the great thing is, for the first time for one of our subsidiaries, we had raised some outside capital. That gave us the dry powder to survive a couple of really, really tough years where there was very little business, very little interest. We were convinced that it’s not a matter of if, but a matter of when that bitcoin would be a thing. We used that time to quietly build our technology, build our infrastructure, get ready for the day when bitcoin would come back and institutional investors would come back. It was a tough couple of years, but I think we were fortunate that we had the capital, we had incredibly supportive investors, and we were ready early last year with COVID and concerns about money printing and inflation. Suddenly, bitcoin really came back as a true, genuine asset class.
Alejandro: In this case, especially for the people that are listening, what is the business model of NYDIG. How do you guys make money?
Yan Zhao: We’re a technology and financial services company focused on bitcoin. We have two sides of our business. One, we call institutional finance, and one, we call platform solution. Institutional finance was a business that we built first. That is a business to serve institutional investors like insurance companies, publishing companies, etc. to help them get invested into bitcoin, whether that’s direct ownership of bitcoin or through funds or through accessing derivatives to structure different kinds of exposures or getting research, analytics, borrowing dollars against bitcoin holdings. Whatever it is, we are a full-service shop that caters to these institutional investors. That’s still a large component of our business. Platform Solutions is the second part of our business that I’ve been focused on over the past year since I joined. As it came about, we realized about a year ago that our first chapter of our story was the institutionalization of bitcoin. That’s a fantastic story, and I think it’s given bitcoin and the entire crypto space a lot of credibility that people like Tesla, Mass Mutual, and Houston Fire Fighters Pension Fund, and others have come into the space. That credibility is very important for the acceptance of bitcoin. But I think the second chapter of our story and the bitcoin story is really about the democratization of bitcoin when you think about how do you get bitcoin safely in the hands of billions of people? How do you truly unlock the potential and power of bitcoin? To me, that’s all about technology, all about making it incredibly easy, not just for us to build products, but for us to empower all the creators and entrepreneurs and companies out there to incorporate bitcoin private services into their own offerings into consumers, and that’s what we focus on platform solutions. For example, we’ve announced a number of partnerships within the thinking sector with FIS, Fiserv, CR Q2. These are companies that help banks run their operations and their technology. We’ve partnered with them; we integrate with them so that in the future, any bank or any credit union that wants to can offer bitcoin buying and selling through their bank mobile apps to their consumers. They can offer bitcoin rewards, debit cards, or checking/credit cards to their consumers. We work with fintechs. We’re working with nonprofits, so we’re working with anybody who wants to invest in bitcoin.
Alejandro: Nice. You were alluding to this before, but how much capital have you guys raised to date for the company?
Yan Zhao: The amount that is public is we have publicly announced $400 million of fundraising to date.
Alejandro: All right. Fantastic. How big is the company? How many employees or anything that you can share with the listeners?
Yan Zhao: We have about 250 employees. We’ve grown tremendously over the last year. One of the fun challenges that I’m sure a lot of entrepreneurs have faced over the past year is trying to grow in the midst of COVID and in the midst of remote work, and how do you maintain culture? We at NYDIG and Stone Ridge have a very strong culture. How do we maintain that in this environment, especially when these are fast-paced, especially when we can’t see each other, so that’s been something that we’ve worked very hard on? We’ve grown quickly, and I think that’s been a function of just how much demand there has been. When we set upon our journey on the platform solution side, building these technology integrations less than a year ago, we were surprised by the demand from consumers. We were surprised by the demand from banks and fintechs and from regulated entities who we thought probably won’t be touching bitcoin for a while, but yet, they are here asking for ways to serve their customers. So we’ve gone after that opportunity, and it’s been an incredible ride.
Alejandro: Where do you think, as a whole, bitcoin is going?
Yan Zhao: I think it’s going to be incredibly the best in the coming years. I was thinking about when I was little, the first time I went online, on the internet. Back then, the internet wasn’t that exciting. It was a few pages, some GeoCities, com pages, and things like that that I was bouncing around. I was like, “This is interesting. I can see some things. I can search for a few things. It’s cool.” But, to me, I didn’t realize the impact it would have 20-30 years later because humans are incredibly inventive. You give them this new technology, and they will build things that nobody can imagine. I remember the first time I was able to do a Skype video call with my grandparents in China, and that was mind-blowing. For years and years, I couldn’t see them unless I was able to fly to China. In my mind, bitcoin is one of those technologies that is similar and transformative. You think about a lot of the fintech innovations over the past few years, they’re incredible, but a lot of it is building nice customer experience, UX/UI layers on top of antiquated technologies for moving money.
Yan Zhao: Bitcoin is a completely new foundation and completely new technology. It is digitally native. It is, by definition, a digital network and a programmable, distributed, decentralized, and, to me, the possibilities. It’s not just the simple ability to buy and sell and hold it as investment or not being able to transfer money globally, but all the different applications of a digital, decentralized, programmable money. That is, to me, mind-blowing.
Alejandro: Do you think that the utility of Bitcoin, as we know it now because people have been using it more as a method of storage and value, do you think that as we know it now, maybe it’s going to be more transformed and how we’re going to be perceiving and using bitcoin down the line?
Yan Zhao: Yeah, for sure, especially as there becomes more regulatory clarity. There will be more and more innovation in the market. I don’t think regulation hampers innovation. I think clear regulation that tells you what you can and cannot do helps innovation and blossoms. I do expect to see a lot more innovation in the space in the future. I definitely see that the transformation of Bitcoin as just the bitcoin as an asset to bitcoin as the network. People around the world are already using it not just as a store value but also as a way to transfer money. Reymesa is a huge business. People who work in the U.S. can send their money home to El Salvador, Guatemala, China. My dad used to send money back to China when he worked here. It’s still clunky, expensive, and it takes many days. You can risk losing some of it. A lot of people are already using bitcoin today to send money around the world. People in lots of different nations are using it in their day-to-day lives because their own currencies just aren’t stable, aren’t trustworthy. I heard incredible stories about countries with an authoritarian rule that NGOs were trying to send money into the country to help freedom fighters, and they couldn’t, under normal circumstances, and they were able to send bitcoin. So, absolutely, I think there’s a lot more bitcoin as a network in our future.
Alejandro: As you’re looking back in time, if I was able to put you into a time machine and you had the opportunity of speaking with your younger self, maybe that younger self that was still in Morgan Stanley and going through that thought process of what’s my purpose? What am I doing in life? Based on what you know now, especially when it comes to business, what would be that one piece of advice that you would tell that younger Yan about how to think about things and how to go about them?
Yan Zhao: That’s a good question. I think the one piece of advice has to do with my journey from thinking that I can be successful just by working hard at what people tell me to work hard at. So, be a good student, get an A on the test. That is success; that is a form of success. But then I realized I was limiting. My second realization was, “I think I can be even more successful by working hard, learning, branching out, following my passions, doing new things, and pursuing these additional goals rather than just following the path that people set out for me. I think that was helpful, but what I truly learned through my time at Stone Ridge and NYDIG and doing business is, it’s not just about me working hard. Don’t get me wrong. Working really, really, really hard is, I think, the baseline for anybody who wants to succeed as an entrepreneur. It’s really about the people that you’re working with. As a young person, I didn’t truly appreciate that. Once I got to Stone Ridge, I realized, “We’ve built so many different businesses together at Stone Ridge with a lot of the same core people. And we’ve built businesses that we never built before and never had experience in. A lot of them failed. Some of them succeeded, but through it all, we stayed together as a team.” What I realized was, if you have the right people who are kind, who are humble, who help each other out, who are truly brilliant and great athletes in their own rights, then you can overcome anything together, whether it’s incredible excitement of launching a business or incredible disappointment of suffering failure, but then picking yourself back up and building the next thing.
Alejandro: I love it. Yan, what is a book that you wish you would have read sooner?
Yan Zhao: There was a biography of Harry Truman that I read. It’s not about business. It was just remarkable to me in that Harry Truman was, in a lot of ways, you would think of him as a very ordinary, average person. But he was thrust into the presidency, and he rose to the occasion. He was a decent, humble, and genuine person, and how he adapted his life by adapting his own skillset to the presidency. I thought it was very inspirational.
Alejandro: Amazing. For the people that are listening, Yan, what is the best way for them to reach out and say hi?
Yan Zhao: I am on Twitter @YanZhao1. You can find us at http://www.NYDIG.com.
Alejandro: Amazing. Yan, thank you so much for being on the DealMakers show today.
Yan Zhao: Thank you so much. I appreciate it.
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