Pooling Upside in Baseball and Business with Pando
Charlie Olson is the Co-Founder and CEO of Pando, a Series A stage fintech designing new ways for high financial variability performers to manage financial risk and upside.
Pando’s platform allows professional baseball players and more recently business school graduates to pool future earnings potential in ways that smooth income volatility for the group. In theory, this type of approach could help society better allocate talent against opportunities, without the constraint of personal financial risk appetite.
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Thank you very much for joining us today. Please welcome, Charlie Olson.
Full transcript:
Will Beeson:
Charlie Olson, welcome to Rebank.
Charlie Olson:
Will, thanks for having me.
Will Beeson:
It's great to connect. So, at the time of recording, and hopefully we'll manage to push this pretty quickly, we've actually been taking advantage of all the sheltering in place to connect with some amazing guests from around the world. But at the time of recording, you guys had a TechCrunch feature go out very recently about fundraising. Can you tell us a bit about yourself and Pando and your guys' exciting recent news?
Charlie Olson:
Sure. Well, I'd like to start by acknowledging that that was actually news that, frankly, we had been sitting on for almost a year. So, a year ago, when we raised our Series A, we were only pooling, I'll get to this, but we were only pooling professional baseball players. So those were our only clients. And press about a successful Series A, in a great publication like TechCrunch, would have fallen largely on deaf ears with the professional baseball community and so we decided to wait, in that one of the goals of our Series A fundraising was to launch into a customer segment, a market outside of professional sports. A market segment we were confident would be much more receptive to the news and excited to interact with Pando, after hearing the news about our successful fundraising.
Charlie Olson:
So I wanted to clear that up to start with. My name is Charlie Olson. I am the CEO and co-founder of Pando. We have built a marketplace to help people, entering high volatility careers, to come together, to find a group and to agree to share a small portion of their future upside, inside that group. We call that action income pooling, and we call those groups pools. So if you hear me use those terms, that's what I'm referring to.
Charlie Olson:
Our first market was working within sports generally, but professional baseball more specifically. And in the past year, we've expanded to working with MBA graduates, not NBA basketball players, but business school graduates and entrepreneurs. It's been a fun ride. I actually graduated from Stanford Business School almost three years ago to the day. And while we're young and we have a long way to go, it's been really fun to deliver a new solution to, I think, a non novel problem, but a novel solution to a great group of customers.
Will Beeson:
All right. So firstly, I have to clear this up. You kind of sound like a baseball player. Are you a baseball player?
Charlie Olson:
No.
Will Beeson:
But an athlete. You must be an athlete.
Charlie Olson:
I'm a wannabe athlete. I think I peaked in baseball in seventh grade. That was right before the advent of the curve ball. Curve ball was my demise. I love sports, I love competing, I just am not very good at them.
Will Beeson:
All right. But you are at least an MBA, so you fall into pool two.
Charlie Olson:
Exactly.
Will Beeson:
All right. So joking aside and to just dig in a little bit. So the pooling concept, can you give me a very tangible example of who would participate in a pool and then what would happen over time, such that they would receive the benefit of having participated?
Charlie Olson:
Maybe I can outline the problem first as we see it.
Will Beeson:
Sure.
Charlie Olson:
And then go from there, into who some good use cases would be. So going back to the early days of Pando, I met my co founder at Stanford Business School. He approached me and he had been doing research with a labor economist at Stanford and the research suggested two really interesting macro trends. The first, was that we are increasingly moving in the direction of a high volatility, high uncertainty, winner take all economy. And at the same time, our generation is significantly less connected to the community-based institutions, things like churches and in schools and small towns and large families, those institutions that used to catch us if we took a risk and we fell. And so that's kind of interesting. Our generation has a little bit of this double edged sword. More career volatility and less community-based support.
Charlie Olson:
So Eric and I put our heads together and said, "I wonder if we can create a novel, financial tool for the modern economy, a tool that relies and leans on the power of community." So, when we originally designed income pooling and at it's most basic premise, income pooling again, is a group of people coming together to contractually agree to contribute a small portion of his or her future upside to the shared pool. What does that give you? If you are, let's say, a professional baseball player and you were drafted in the first round of the MLB draft, at the time of your draft, if we look historically, you have expected future earnings of $45 million. That's awesome. And yet, and here's the rub, a full 50% of those first round draft picks will go on to make less than $1 million in their baseball career.
Charlie Olson:
So, you have this incredibly disparate set of outcomes, where half the set is earning less than a million, which means that the other half of the set has to average over $90 million, in order for the full set to be at $45m. And those players have no way to affect the odds of those outcomes. And if you think about what life is like as a professional baseball player, I think that most of us, probably a lot of the listenership, thinks about the Mike Trouts of the world, the Bryce Harpers of the world, those shiniest stars. And the reality of becoming a professional baseball player, like in other sports, is far less glamorous. It's full of long bus rides, bad food, but maybe more importantly, in the minor leagues, a minor league baseball player is making less than $10,000 a year. That's the salary. A minor league baseball player, actually baseball players generally, are exempt from federal minimum wage laws.
Charlie Olson:
And the path to becoming a professional baseball player, you have to go through the minors. It takes time. And the reward though, if you get to the majors is huge. Right? I mean, Mike Trout signed a contract last off season for over $400 million in fully guaranteed money. Okay?
Charlie Olson:
So you have this incredible, incredible disparity of outcome, where the path is hyper unclear. There's huge risks, that are outside the player's control, whether it's injury risk, team politics, where you're drafted, et cetera, et cetera, et cetera. And we designed a solution for athletes to come together, to agree to contribute a small portion of his earnings, above a threshold. So in the baseball model what we've done is, if and only if you make the MLB, at that point you agree that after the first $1.5 million that you make cumulatively, you agree to contribute 10% of those incremental dollars.
Charlie Olson:
So if you're the first round pick and you pool with five other first round picks, you hope that you are the Mike Trout in the group, but you are also acknowledging that you might not be. And if you're not, now all of a sudden you have a cohort, you have a group and you're hoping that a couple of those guys go on to do extraordinary things and you get to share in a small portion of their success. Improving the opportunity costs of pursuing this risky career and making sure that you have the dignity of a secure financial future.
Will Beeson:
Yep. Okay. So the 10% basically then gets paid out and I guess, the simple scenario where one out of the pool makes it, the 10% of earnings are then basically distributed across the other members of the pool who didn't make it?
Charlie Olson:
Yeah, that's right. So contributions happen annually and Pando, in this way, acts as a pass through entity. We are going to bring in the contributions and then divvy up equally, based on the number of people in the pool.
Charlie Olson:
So the goal of the goal of the Pando marketplace is to group players by similar expected value. So you're putting similar players with similar players. First round picks with first round picks, AA pitchers with AA pitchers. And that way, those guys are going into this together saying, "I believe in myself, I hope I am the man, but if I'm not, I'm with a bunch of other guys that I'm really excited about." And so at that point, contributions happen annually and Pando acts as a pass through entity, with distributions happening annually as well.
Will Beeson:
I love the concept. I know it's super early, but do you have any success stories yet, or stories of early success?
Charlie Olson:
Yeah. A few things that I can highlight. One, we are talking in the middle of what will be the strangest baseball season, maybe of all time. That's tough for us and more importantly, very challenging for our clients, especially on the minor league side. Those guys are paid nine months out of the year maximally and they haven't been paid in a long while. We have clients that will clear that hurdle this season, if this season is played. However, that unfortunately remains to be seen, if it's the case.
Charlie Olson:
I guess our success stories, in the traction that we've had thus far. We have pooled hundreds of baseball players across over 30 different pools. And average pool size is 5.7 players. We have great talent on the platform, we have MLB players, we have minor league players. We have first round picks, we have guys that went un-drafted. We have single A players and AAA players and everywhere in between. And what I would just say is, I think that COVID has been really an eyeopening event, especially as it relates to Pando. At it's core, income pooling helps mitigate against risk and uncertainty and it does so by leaning on the power of a group. And I think we're living through the riskiest and most uncertain event of many of our lives. And it's an event, in which we are told that the best way for us to be part of the solution, is to be alone. And I know that has created a host of other challenges.
Charlie Olson:
So Pando as a product, I think has been really well positioned to stand up in our ability to help future clients mitigate against the risk of things, like a global pandemic.
Will Beeson:
Yeah. Well, it'll be interesting to see what the impact on employee, whether it's baseball player or Wall Street employee mindset is, coming out of this experience and the relevance of Pando as a result.
Will Beeson:
Maybe quickly, because I think it's such a crucial part of the conversation, can you just talk about the economics and the monetization for Pando, of the business model?
Charlie Olson:
Yeah, absolutely. So we take a portion of pool contributions. So in some ways you can think about us as going on the ride with these groups and taking a portion of AUM as a fee. And what I like about that model, is that we are motivated to create great pools, that provide a lot of value for our clients and the more money that sloshes through these pools, the more money Pando makes. It further aligns us, in that we have created a legal contract, that is really the backbone of this contractual arrangement and because our revenue is derived from contributions, it means that like the other members of the pools, we are highly motivated to make sure those contributions happen and happen seamlessly.
Will Beeson:
All right. So looking forward, you talked about what you've been investing the Series A raise in over the past year or so, and you've just launched pooling for MBA graduates, I think you said. Can you talk a bit about that?
Charlie Olson:
Yeah, absolutely. Absolutely. The long run vision of what we're trying to build, is a platform where anybody in any career can come to us, search for, find, or build their pool. And in order to do that, we had to think about how to win narrowly. I think that we, from the very beginning, perceived that in order to win more broadly and to create change at significant scale, we had to choose, early beachhead markets that we could tackle and succeed in. And baseball was the first one. And we'll continue, to our baseball clients, we will continue to grow and build. And I expect us to be a part of the fabric of the game of baseball for a long time to come.
Charlie Olson:
I think there's also a lot of other places we could have gone next, that were not to business school students. Maybe a lot of other places that are more intuitive, for example, other sports or entertainment, media. And I'm thinking about a whole bunch of different careers inside of those ecosystems, whether it's actors, actresses, singers, songwriters, models, influencers, et cetera.
Charlie Olson:
And yet, we went towards business school students. And the rationale for that was, I think, twofold. The first, kind of tongue in cheek here, but Eric and I wanted to be clients. Eric and I were MBA graduates, we from the very beginning, saw the value in Pando. And I think, from early days we thought of Pando as much more than just a diversification play. We thought about it much more than a way to take the career risk that we own and to spread it across a group, in order to mitigate downside risk.
Charlie Olson:
I know I am the probably irrationally self-confident founder when I say this, but that was not the chief value proposition for me when I built my pool. The value prop that I was attracted to, was the ability to share upside in a high octane peer group. And I'm thinking about my graduating Stanford Business School class...
Will Beeson:
To lever up.
Charlie Olson:
Yeah, absolutely. And the way I saw it, I remember being in class so regularly, listening to amazing classmates answer questions and having that imposter syndrome feeling and saying, "I don't even think my brain is capable of that thought." And so, I recognized that there are classmates of mine who are going to go on to do extraordinary things and I would love to be along for the ride. But maybe more importantly, I also perceive that the world is not zero sum and that my path to success will not be a solo journey. And if I can surround myself with a few other individuals, who are also financially motivated to see me succeed, I and my pool can create better outcomes, not only on a kind of utility of dollar perspective, where the person who makes a ton of money shares a little bit of the proceeds with the group that helped him or her get there. But in addition, my life can be improved by surrounding myself with a great group of people who are motivated to care and to pay attention and to see me succeed.
Charlie Olson:
So, the reasons we've gone into the MBA, the business school market, in many ways is to test just how big Pando can be. It is a different customer segment. The floor looks different than the minor league baseball player. And on the other hand, the customer need seemed salient and the same product can deliver a solution. And that's one of the things that's really interesting to us. And if we can open the door, by seeing traction inside the MBA market, and we can open the door to the broader finance community, we can open the door to a broader group of entrepreneurs, to consultants, to lawyers, to doctors, et cetera. Those are massive markets and groups, for which I could see pooling solutions that are really interesting.
Charlie Olson:
Whether it is taking risk off the table, for the person who leaves University of Chicago Business School and goes on to become an entrepreneur and would like to pool with some folks who are in steadier careers, or to the person who leaves HBS and goes to Wall Street, into a private equity role and is interested in spice in the gumbo and pooling with some really hungry, talented entrepreneurs. There's a bunch of interesting ways to use pooling to satisfy different desires.
Will Beeson:
Oh, okay. That's interesting. So it's like some sort of structured product, where the Wall Street guy is like the annual cash flow, in part going to keep the lights on for the risk takers in the pool. And then there's potential upside on top of that, that would accrue back to the Wall Street guy and the other members of the pool, if one of them hits a big in Silicon Valley.
Charlie Olson:
That's right. And another way to think about that, is you could have a group of people with similar expected values, with very different risk profiles attached to that expected value. The entrepreneur and the person on Wall Street might have the same expected value, but to your point, the person on Wall Street expects that they are much more likely to be the cash contributor on an annual basis, knowing full well that the entrepreneur is also the person who is much more likely to have that really big, single year exit, at some point.
Will Beeson:
My mind is spinning a little bit, as I think all this through. I guess the most salient question I can come up with right now, is that if I think about baseball players and I think about business school graduates, the biggest difference perhaps, is the expected distribution of results in financial returns. Firstly, I guess, at least traditionally the majority of MBAs have gone on to more corporate jobs, where I would expect more consistent, but more capped, at least compared to a Mike Trout type situation. Whereas the results are often binary in the baseball equation.
Will Beeson:
Does that change the relevance of the model do you think, from one group to another? Or perhaps this is part of the live in-market research that you guys are doing?
Charlie Olson:
Yes. There is definitely an element of, we are learning and paying attention to actually what people make, going into different careers and what are the volatility around those earnings. And while I think there's an intuitive sense in the marketplace as to what you make in different career paths, that's not a dataset that is available widely. And one thing I would maybe push back on, Will, is that if you look historically at, and I'll use Stanford as an example, at the graduating Stanford Business School class, the top two earners in a given class, typically will earn more than the rest of the class combined.
Charlie Olson:
So there is this element that you have highlighted, I think which is spot on, which is the floor is very different. But I also think the ceiling is different. For business school graduates, there is the potential to become a billionaire. That is a very, very, very rare event in sports. I don't know the exact number, but I think there might be two. Maybe there's a couple. So it's MJ, LeBron and Tiger, who knows maybe Michael Schumacher, I don't know, but they're few and far between.
Charlie Olson:
So there is still an immense amount of volatility, it's just skewed up, if that makes sense. There are more people, if we're looking at this and thinking about it as a normal distribution, which it's not, but if we're thinking about it that way, there are more people in the middle of the curve. That's absolutely right. However, there is still the long right-hand tail, which makes this still, I think, quite compelling.
Charlie Olson:
And one other thing to just keep in mind, is that one of the reasons you go to business school, is to lean into the power of the network and lean into the power of the community. It's not only to learn from your classmates. Often because you're considering a career pivot, or it's to accelerate your career, by surrounding yourself with great people, who you think can be a creative and additive to what you're going to try to do.
Charlie Olson:
So even if you just remove the financial equation here for a second, this could also be seen as a vehicle that ties a group together and motivates a cooperative collaborative board of advisors like relationship, that could be really beneficial for every single person in the pool, regardless of what they end up making. And then another way to think about pooling, is that it might increase the likelihood you have the successful outcome. Again, regardless of the reality that you have agreed to share a small portion of that successful outcome with this group.
Will Beeson:
So it seems to me like there's an element here, which is maybe the flip side of, and I'm going to blank on the term, but basically the alternative approach to student debt, where you're taking an equity stake in someone's educational expenses, in exchange for a share in earnings over a period of time after graduation. This could be a bit left field, but are there ways to build in other components of the pool model? Either to unlock that sort of funding, for say, a pool of would be MBA students, to fund their education and potentially share upside going forward? Maybe I'll just cap it there and start with that question, then I have a related one after that.
Charlie Olson:
Sure. You're referencing the ISA, the Income Sharing Agreement market, and that's a fascinating one that is blossoming and has this headwinds as well. So I think that, one of the things you're referencing there is, can we design an equity-like product that is currently satisfied by something that is a debt product, literally student debt, in a way where we can get cash in the hands of students or remove the need to pay, because for example, a school creates a pool and because the school owns a small portion of their students' future earnings, are they able to not charge?
Charlie Olson:
That's, I think, a really interesting model in the long run, it definitely gets us back towards an aligned set of incentives. Where the school is then really motivated to produce great educational outcomes and great career outcomes, because they own a portion of the outcome. We're a ways away from that. I don't think there's any way to get around that reality. And yet, I do think there are some ways to create a pool where there is cash relief in a nearer term, for some individuals. So, one of the ways would be for, as you highlighted, that Wall Street individual to pool with somebody, maybe who's going through school at that time...
Charlie Olson:
One of the things by the way, that I forgot to mention earlier, that I do think is relevant to understanding the product, is that like in baseball, where we had that cumulative hurdle of $1.5 million, in the business product with MBA students, we also have a hurdle it's just an annual hurdle. So, whether you set it at the first $50,000 or $100,000 or $250,000 that you make in a given year, some amount of money will be protected and that will be decided, based on the group that comes together to pool.
Charlie Olson:
And so one of the things you could think about is, does that person on Wall Street pool with someone who's pursuing an MBA? That person is not likely earning income and yet, maybe they're receiving distributions at a time when their cost of capital, that capital is really expensive, that could be an exchange that makes a lot of sense.
Charlie Olson:
Another way to think about that by the way, is we have a host of what we call mentors on our platform, you can think about them as folks that are later in their careers, who have already had some success, and they're interested in pooling with, whether it's entrepreneurs or MBAs who are entering industries that they know well, who are earlier in their career and young and hungry and organizing some pooling relationship, where they acknowledge that they are likely to be the contributor, the net contributor, in the near term, while yielding benefits in the long run, potentially, if the other folks in the pool excel and succeed.
Charlie Olson:
So there's a whole bunch of interesting ways that, depending on what an individual is looking for, that we can design a product that can accomplish a number of different things.
Charlie Olson:
And one thing I would like to do down the road and admittedly, this could be very, very far down the road. Also, there's a chance that this is not a possibility. But one of the things I would love to do down, down the road, is it'd be great to be able to offer the ability to buy a portion of a pool for cash. You highlighted the income sharing agreement model. You could think about this as the same thing, but instead of one student, it'd be a pool. And if that was the case, then that group would be able to monetize a small portion of their pool for some cash upfront. And again, that can unlock a lot of optionality and a lot of opportunity, for those pool members and potentially ROI and return for the person who's investing.
Charlie Olson:
That's not something we currently do. It's very much theoretical at this point, but something that definitely has intrigued me from the very beginning of starting Pando.
Will Beeson:
All right. So in terms of more immediate steps. You're launching into this new segment now. What do you expect the next year or two to bring? And when should we expect the TechCrunch article with the 12 month old news of your series B?
Charlie Olson:
Yeah. Okay. Let me do the math, carry the two. No, it's so hard to predict. I think that we're so fortunate to have raised when we did. This is such a challenging time for all businesses and we were fortunate to be in a position where we're well capitalized, in a business that was not hurt by COVID. Arguably it's been the other way around. And so, we'll see. The plan originally, in early 2020, we were trying to launch at Haas and at the GSB with this MBA product. The thesis was, Pando is based in downtown San Francisco, we could be boots on the ground. COVID had other plans for us.
Charlie Olson:
And yet, just two, three weeks ago, we launched and opened the platform to Wharton and to Booth. And the next cohort is going to be MIT Sloan, HBS and Kellogg. So we're going to keep going. We're going to keep expanding. This has been really exciting for us, to see the early excitement and early traction that we've had. I am now a user of the Pando product, which I'm proud of. And I hope my pool mates don't mind me bragging about them, but it's a group that I'm really excited about.
Charlie Olson:
But you know, Will, from the very beginning, we did not set out to build a company targeting only professional athletes or MBAs. And I will openly admit, MBAs are probably a group that need our product the least, in many ways. We talked about the difference of floor. But one of the things that we're trying to do, is to build a strong and sustainable business over time and use our success and use the revenue and hopefully over time, profit generated to drive down acquisition costs, to design an online experience that becomes much more do it yourself, and be able to expand. Because I think that everyone on earth deserves the dignity of a more secure financial future.
Charlie Olson:
I further think that right now we are in a world where too many people are forced to make career decisions, based on near term financial requirements. So, in essence, their career choice is dictated by their risk tolerance. And that seems to me to be a really strange way to be organizing talent, rather than for example, passion or talent, dictating what careers we pursue. And what I'm hopeful that Pando can create over time, is a platform for everyone, where if we can help, we would like to create better outcomes where career choice and risk preference are aligned.
Charlie Olson:
I want to live in a world that is enriched by community. And if Pando can help encourage more of those communities to come together, to cooperate and not only help in bad times, but celebrate good times, then I think this becomes much more than a financial tool. It becomes potentially, a business and a platform that could change the way we think about career risk and change the way we think about our own career advancement and a life and a career of meaning and purpose.
Charlie Olson:
So that's where we're going. I know that was so high level, but if we can continue to build great pools and then shine lights on the successes that we have there and make this behavior, in many ways, more normalized and celebrated, I think the future is very bright for us.
Will Beeson:
Love it. Charlie, I wish you guys all the success in the world. Very, very exciting, potentially a very powerful concept.
Charlie Olson:
Thank you, Will. I appreciate it. Thanks for the time.
Will Beeson:
Charlie Olson, thank you very much for joining us today.
Charlie Olson:
Absolutely.
