Episode #273: Adam Moelis, Yotta Savings, “Almost Half Of American’s Can’t Come Up With $400 In An Emergency And 78% Of People Live Paycheck To Paycheck”
Guest: Adam Moelis is the Co-Founder and CEO of Yotta Savings, which allows users to save money, get over 2x the national average in interest and get weekly chances to win additional prizes up to $10 million through weekly random number drawings. He previously worked at Goldman Sachs and YipitData. Adam graduated summa cum laude from Wharton with a degree in Finance and Accounting.
Date Recorded: 11/11/2020
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Summary: In episode 273, we welcome our guest, Adam Moelis, co-founder and CEO of Yotta Savings, which allows users to save money, earn over 2x the national average in interest and get weekly chances to win additional prizes up to $10 million through weekly random number drawings.
In today’s episode, we’re talking about how to use behavioral psychology to encourage American’s to save. We start with a somber look at the average American’s financial picture. Then Adam explains the history of lottery or prize-linked savings accounts and why the idea was mostly banned in the U.S. until 2015. He discusses the experience of going through Y Combinator’s first remote batch and then explains the lottery program, which offers users a chance to win between ten cents and ten million dollars.
As we wind down, we hear about the company’s’ experimentation with customer acquisition with influencers and why they’ve focused on the social aspect of the app.
Please enjoy this episode with Yotta Savings’, Adam Moelis.
Links from the Episode:
- 0:40 – Intro – Visit https://www.withyotta.com – Promo Code: MEB to get 100 extra tickets into next week’s contest
- 1:56 – Welcome to our guest, Adam Moelis
- 3:04 – Core issues that keep Americans from saving enough
- 3:07 – The Meb Faber Show – Episode #260: Joel Greenblatt, Gotham Asset Management, “Nine Out Of Ten Families In The Top Fifth Of The Income Chain Have Retirement Savings, Nine In Ten In The Bottom Fifth Have None”
- 6:20 – Origin for Yotta
- 8:53 – Roadmap to launch
- 9:58 – The Y Combinator experience
- 11:33 – Their funding via Y Combinator
- 12:50 – An overview of what Yotta is and how it works
- 16:59 – The problem with current savings accounts and how Yotta solves it
- 19:26 – The prizes that Yotta offers and why it works
- 21:55 – How prize-linked savings accounts started to be legalized in the states
- 22:35 – Funding the prizes
- 23:47 – Outlook for Yotta
- 25:55 – Potential shift to an investing product
- 28:20 – The team and what they are hiring for
- 30:03 – How the drawing of the winner works
- 32:48 – Most challenging moment of building the platform
- 34:57 – Most memorable investment
- 36:51 – How to learn more: withyotta.com
Transcript of Episode 273:
Welcome Message: Welcome to the “Meb Faber” show, where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.
Disclaimer: Meb Faber is the Co-Founder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria investment management or its affiliates. For more information, visit cambriainvestments.com.
Meb: Hello, friends, great show today. Our guest is the Co-Founder and CEO of Yotta Savings, which allows users to save money, earn over two times the national average in interest and get weekly chances to win an additional prize up to 10 million bucks through weekly random number drawings. As a special offer for listeners of this show, visit withyotta.com and use the code “Meb” to get 100 extra tickets into the next week’s drawing. That’s withyotta.com and use the code “Meb.” In today’s episode, we’re talking about how to use behavioral psychology to encourage Americans to save. We start with a sombre look at the average American’s financial picture. Then our guest explains the history of lottery or prize-linked savings accounts, and why the idea is huge elsewhere but was mostly banned in the US until 2015. We discussed the experience of going through Y Combinator’s first remote batch and then hear about the lottery program, which offers users the chance to win between 10 cents and 10 million bucks. I’ve already won once. As we wind down we hear about the company’s experimentation with customer acquisition with influencers and why they focused on the social aspect of the app. Please enjoy this episode with Yotta Savings’ Adam Moelis. Adam, welcome to the show.
Adam: Thanks for having me.
Meb: Stoked to have you on. Where in the world can we find you today?
Adam: I’m currently in Manhattan.
Meb: But a LA native, the land of milk and honey, we miss you here. Hopefully, we can catch up in the real world. We’re going to talk about a lot of fun stuff today. So let’s start with the really depressing stuff out of the way first. What’s the status of savings in the US for Americans? Give us the broad overview. It’s not a pretty picture, is it?
Adam: Hasn’t been a pretty picture for a long time. I mean, I think it’s more top of mind now than ever, given COVID that bad things can happen pretty quickly and that people need to think about saving more and being more financially robust in the future. But, you know, we’re still in a position where almost half of Americans can’t come up with $400 in an emergency and 78% of people live paycheque to paycheque, the personal savings rate hit an all-time high in May. So people are saving more as compared to their income. Stimulus checks and things drove a lot of that like that. So we’ll see how that goes from here. But hopefully, disaster makes people think more about saving going forward.
Meb: As we think about… You know, we just had a recent podcast with Joel Greenblatt. Listeners, if you haven’t heard it, check it out, where it’s talking about a lot of policy ideas for all sorts of different parts of finance investing, but particularly the wealth and income gap. What are sort of the core issues? Are Americans just crappy at savings? Do they not make enough money? Do they just love playing the sports betting on the weekend? Like, what’s the main issue here?
Adam: I think it’s a combination of all the things you mentioned. But one thing that we’re especially focused on is let’s separate some people that don’t make enough money to really set enough aside for saving for a rainy day. At the same time, there are statistics out there that show that Americans spend $80 to $90 billion per year on the lottery. And that comes out to about $640 to $700 per household. And so, the reality is that a lot of Americans are finding room in their budget to buy things like lottery tickets, which I’m not here to say it’s an irrational decision from an emotional perspective and other perspectives but from a purely financial perspective, the lottery is pretty much the worst gamble you can possibly make. And so, there’s a lot of overlap between the group I mentioned before, half of Americans not been able to come up with $400 in an emergency and people spending over $650 per year on the lottery. If those same people just save that money instead of spend it on the lottery, they would have that money in the bank potentially. So there is an issue with human behavior as well.
Meb: The funny thing about the lottery as you think about it, that’s the average American. And if you look at the people that are active lottery players, it’s like double or triple that. They spend like $1,000 or $2,000 or $3,000 a year. I’ve said this on Twitter before, years ago, I said, you know, “Theoretically, if you’re a politician, that’s incredibly predatory.” And you say look, “Free will,” yada, yada, whatever, but still, it’s a predatory system that’s set up. Why won’t any politicians, congressmen, senators of the like, say, “No, no, we’re gonna do away with this?” Well, it’s because it generates a ton of revenue. And so we all know politicians will be politicians. And last thing you want is take away their piggy bank. And so, it’s this weird, conflicting system that everyone knows is terrible for people but part of it is that people wanna fantasize about a brighter future, and they feel like there’s no out. And so anyway, we talk a lot about systems, and incentives, and structures, which leads right into what you guys are up to. Any other thoughts on the broad issues before we jump into what y’all are doing?
Adam: Not only is the lottery a weird thing for the government to be running and supporting because it doesn’t really help people, it actually hurts a lot of people but it makes it even worse that the government has a monopoly on it. If you had legal lotteries and private enterprise is allowed to run lotteries, at least the expected value for people who play the lottery would be much higher. It would be more competitive. Instead, you’ve got a monopoly on a system that if you play blackjack in Vegas, you have much, much, much better return on your investment, if you wanna call it that than you do playing the monopolized lottery. So not only is it crazy that the government runs it, but it’s crazy that the government monopolizes it.
Meb: Good news is, you guys have started thinking about something we’ve actually talked a lot about on this podcast or Twitter in the past before y’all existed. And this isn’t something new. This goes back, I think a couple 100 years, right? Talk to me a little bit about the origin story for Yotta and what led you to starting the company?
Adam: So in the UK, there’s something called Premium Bonds, which a lot of Americans, almost every American probably hasn’t heard of but most people who have lived in the UK are familiar with. And it’s basically a system there that’s run by the government where people save money. And instead of getting paid interest, like you typically would in a savings account, you get the chance to win a prize every month. And the prizes range from £25 to £1 million as the jackpot. And basically, for every pound you put into the system, you get one entry to win a prize. And this has been around in this form in the UK since the mid-50s or 60s, I forget exactly the date. But over time, it’s become the number one savings vehicle there. So, over a third of the British population participates in it. And there’s over $100 billion in savings in the system. And so, it’s been hugely popular in the UK. It actually… It wasn’t Premium Bonds. But this type of savings account called a prize-linked savings account or a lottery-linked savings account really dates back hundreds of years. And even in the last 30, 40 years, not only in the UK has it been massive, but in New Zealand and South Africa, and a bunch of other countries. But it’s a relatively new thing to the U.S.
Meb: Were you just over in a pub in London, chatting with some friends and bought some Premium Bonds? What originally was the spark that got you to start Yotta?
Adam: I wish I could say that was the story but it’s not. It’s a little bit more boring than that. A friend of mine had moved to the UK, and he knows I’m a geek about behavioral psychology, personal finance, all that kind of stuff. And he came across the program and told me about it. And I was just fascinated by it. I mean, I knew a little bit about the statistics in the U.S., about paycheck-to-paycheck, and people not having money for an emergency and the lottery statistics we talked about. And this idea just really struck a chord with me, given my interest in behavioral psych. And so I started doing a lot of research into the space. I was wondering why I’d never heard about it before. Ultimately looked into why it’s not a thing in the U.S., what’s the state of this industry in the U.S? And ultimately I just got really excited about the idea to bring it here in a way that could be as similarly massively successful as it’s been in other countries.
Meb: And then unlike many people who would just say, “Okay, that sounds interesting, somebody should do that,” what was the roadmap? Did you start with Y Combinator or before?
Adam: This is before Y Combinator. So this was about a year ago. The first step was researching the space in the U.S. trying to figure out if there was an opportunity here. We can get into this more, but it was generally an illegal concept in the U.S. until 2015. So it really wasn’t possible until recently. There are a few players that have tried to play in this space and we just thought they weren’t executing very well, based on talking to their users and figuring out what they liked and didn’t like. And so initially, after doing that work, it was really designing the concept and mocking it up. I ended up working with a team of freelance developers for a couple of months, my technical co-founder that joined as well, a couple of months after that, and then we brought all development in-house, really started building it in January, launching it this past summer. And that’s when we went to Y Combinator for the summer. And since our launch, we’ve been growing very quickly and things are going well so far.
Meb: Tell us a little bit about the Y Combinator experience. I know a lot of listeners are budding founders as well as investors. How was the experience for you guys? What was the whole application process like, any fun stories that came out of that?
Adam: We’re really glad we did it. So the application process, we did it kind of on a whim. You fill out an application online, you answer a list of questions. Even if you don’t end up applying or even if you don’t get into the program, going through the process of filling out the application really helps you get your head around your own idea and test your core assumptions and things like that. So I think it’s a worthwhile exercise regardless. So then we submitted the application, we got an email back a few weeks later then we got scheduled for an interview. And then we had the interview, I think, last day of April, 1st day of May, something like that. And it was a quick 10-minute interview with three partners, then they brought us back in a few hours later for a second round of interviews. And then that night, they told us, we got in, and we spent the weekend deciding whether we were going to do it or not. Ultimately, we decided to do it. And we’re glad we did. Part of decision-making was around this was the very first Y Combinator remote batch. So you’re trying to figure out is this going to be as valuable as it has been in the past? Ultimately, it was. It being a remote experience, you still get all the advice you get from the partners who are working with you. You still get the camaraderie around other founders and pushing each other to move faster and setting goals and things like that. And you do build the network. I’m sure the network would have been stronger if we were in person. It’s just tougher to build relationships virtually.
Meb: What’s the output once you guys are done? Do they give you some cash? Do they take an ownership stake? How does that work?
Adam: So once you start, they give you basically… Now it’s 125,000, they gave 150,000. We were the last batch to get that investment. They take a piece of equity that happens before the batch. During the batch, every week, you have speakers, they have aspiring speakers in the past who have gone through YC and have been successful. You have a group that you talk to every week for an hour about challenges and things like that. And these are companies going through very similar problems that you’re facing. And so it’s a lot of very applicable challenges that you learn from each other. And we have our group partners who are YC partners who have seen startups probably more than anyone in the world. So they have tons of repetitions of what people have done correctly in the past or what people have done wrong in the past. And that’s super valuable. At the end of the day, the last day there was a demo day, where we present for hundreds of investors. This was on a video chat. Usually, it’s in person. And we ended up raising a seed round out of that. A lot of companies do it. You don’t necessarily have to raise money out of it. But for us, it just made sense timing-wise, where we were with the company. Demo day is really helpful because it gets a lot of investors in front of you at one time.
Meb: We’ve danced around it enough for this point, let’s hear what Yotta actually is, what you guys actually do. Tell us about the company.
Adam: Yotta is a savings account or instead of earning interest, like you would in a traditional bank, you are in the chance to win prizes on a weekly basis. So, for every $25 you save, instead of say getting 1% interest, like you might at a different bank, you get one ticket every week. So let’s say you save $100, you get four tickets. You get those tickets every single week. Each ticket you pick numbers on and basically every week, there’s winning numbers that we select similar to a lottery. It’s not a lottery, it’s a sweepstakes. And the more numbers you match, the more you can win. And the prizes range from 10 cents all the way to a jackpot of $10 million.
Meb: Oh, damn, anybody won that yet? What’s been the biggest payout?
Adam: Not yet. You might win it soon, though. You got to keep depositing more, and maybe it’ll be you. The biggest payout so far has been 5,000.
Meb: Awesome. Adam is referencing before this episode, I signed up for an account, put in 100 bucks, took me about 5 minutes, I’ve got some tickets. On top of that, you guys can use my code Meb. You can give me some more tickets if you sign up. Here’s the cool thing. Here’s the problem. I was smiling or crying inside, I’m not sure which, when you were referencing 1% savings because I have a Bank of America account, not only that, I am super-secret preferred rewards member or whatever it was. And in prep for this interview, I looked up my interest rate on my super rewards Bank of America. And it is… Any guesses, by the way? You probably know this.
Adam: Three basis points.
Meb: Five basis points. Listeners who aren’t familiar with basis point, it is 0.05%. And I remember getting an email by the way in the last year, it was like a forum marketing email where they were championing the big news about how I’m a preferred customer that gives me… It went from like 3 to 5, exactly what you’re talking about. And I’m like, “This is so offensive. I don’t even know what to say.” I had to, like, search your site, download a PDF. So essentially, you’re getting nothing already at Bank of America. Talk to me about how it works with you guys. Are these insured accounts? How’s it kind of work on your end for practical concepts?
Adam: We are not a bank. We partner with a bank. So any deposit made into a Yotta account, the funds are held at an FDIC insured partner bank. So the same way your funds are FDIC insured at Bank of America, up to $250,000, it’s the same exact thing. The reason Bank of America can get away with paying you the 5 basis points and the reason they make it so hard to find what that rate is, is because they take advantage of inertia. People sign up for a bank account when they turn 18, and they just go with it. They keep with it for 20 years. They don’t switch. They like the convenience these big brick and mortar banks offer of branches, which I think is less important these days. But historically, it’s probably been useful for people. This is an expense for them. They’re taking your money and they’re lending it out and earning 3% to 5% margin on those dollars. And the less they can pay their depositors, the more they make as a company.
And if people are willing to put money into their accounts and I guess similar to you, a lot of people, I mean, the big banks have most of the deposits in the country, they just make that extra profit. There are a lot of other options. Generally, these are online banks or banks that don’t have as big a brick and mortar presence, which allows them to have lower expenses. You don’t see them sponsoring sports stadiums. You don’t see them advertising on TV. You don’t see them having a physical branch in Times Square, 5th Avenue in New York. And so, they pass on a lot of this value to you in terms of a higher interest rate. And the reason they do it is because that’s how they’re getting customers. They’re not getting customers because they have the brick and mortar presence. And so, basically, there’s a huge pool of money in this country sitting in these almost no interest savings accounts. But the problem is it’s inertia. People, they’re not really motivated to open a new account and deal with the hassle. And I can get into reasons why but that’s the fundamental problem.
Meb: This also applies to all facets of finance and investing. We preach all the time on this show about people being stuck in these legacy 1%, 2% fee mutual funds that aren’t even trying to be active. These are just like straight-up index funds that don’t do anything that are tax-inefficient. But people have been there and they said, “The world advances by death and divorces and no one ever really goes back.” But inertia seems like such a big one. But I would love to hear your thoughts. Go ahead and expand on it.
Adam: It’s especially a problem for lower to moderate-income Americans. I think so if you make hundreds of thousands of dollars a year, a lot of people see the, okay, I can earn 1% extra by opening an online savings account, oh, that could add up to hundreds of thousands of dollars over a year or over multiple years. But let’s say you’re someone who spent $600 on the lottery, you could be saving $600 in your Bank of America account, which is what you have right now. You’re earning basically 0 on that. Part of it is an awareness problem. A lot of people don’t know these other options exist. And there’s no minimums most of the time. It’s pretty easy process to sign up, takes five minutes.
But let’s say there’s this overhead mentally of opening a new account. You open a new online account, let’s say you earn 1%. Okay, now, instead of 0, you’re getting $6. And so, for a lot of people, is that $6 worth the overhead and hassle of managing two separate accounts? Probably not. And I’m oversimplifying it, but isn’t a lot more fun, instead of getting an extra $6 a year to maybe buy some lottery tickets. And maybe it’s, Oh, it’s $2 a day, it’s not that much, right? But over time, $2 a day for that ticket adds up. And if you save that money instead, yeah, you might only be getting $6 this year, but you also have the $600 in your savings account. And if you do it consistently, over 10 years, you’ll have $6,000 or $7,000 saved up. Fundamentally, what we’re trying to do is make it so people will migrate towards high yield savings accounts in the low to moderate-income demographic, especially by saying, “You’re not only gonna get $6 of on average, let’s say 1% value from us but you’re gonna have fun every week. You’re going to have the same thrill that the lottery provides of this $10 million jackpot, a life-changing amount of money. And even if you never win a prize, which is unlikely, if you never win anything, you still have those funds in your bank account.
Meb: Talking about the prizes. I’m assuming you said no one has hit the biggie yet but on average, like any given week, are people actually winning? Is it rare for people to win? What percentage of people? All that good stuff.
Adam: Right now on any given week, if you only have one ticket, you have a 2% to 3% chance of winning something. The most common prizes are going to be the smaller prizes obviously. Right now, the 10-cent prize is the most common. It’s the smallest one, but you could win up to, we have a $1,000 prize, a $5,000 prize. We have $10 prizes, $15 prizes. It’s really the more you match, the more you win. I don’t know I’ve had the exact percentages of those. But let’s say you put $100 away you have four tickets in any given week, you have about an 8% chance to win something. Even if you don’t win the big one, you’ve still got the excitement from it and you still got what helps to motivate you to save in the first place.
Meb: Here’s why I like the idea, and for listeners, I’m not only a client, I’m also a very small investor in the company but this concept that we’ve been talking about for a long time, it checks the boxes in my mind. It does the first part of being in this finance world of do no harm. I mean, the lottery to me, I don’t know what the net present value on every lottery ticket is, what they’re chipping off, and maybe you know, if it’s 5%, 10%, 50% and some of them, it’s gotta be scratchers. I loved the scratchers when I was a kid.
Adam: I don’t know the scratcher specifically, but expected value is north of losing 50%.
Meb: Oh, God, that’s horrific. So that was my prize for learning to ride a bike when I was a kid, is my dad said he’d buy me a scratcher. And I definitely t-boned a bunch of telephone poles on my way to doing that.
Adam: At least you learned how to ride a bike as a kid. I learned as a 21-year-old from a friend of mine.
Meb: That sounds painful.
Adam: My dad’s not going to be happy if he listens to this podcast because he claims he taught me but it’s a debate.
Meb: A lot of cars in LA, it’s tougher to learn here, you know. Mine was easy. I was in Colorado. All right, so A, it checks the box of do no harm, B is it creates this nice funnel of incentives where your brain, the little part that lights up when you win something keeps people engaged and interested. And this is why it works. Like, it very clearly works in places like UK. There’s another country that’s really popular.
Adam: New Zealand and South Africa are the ones that have public data available that really show how popular they became. There’s also a slew of other countries that have these programs but there’s no real data available.
Meb: I can easily see politicians listening to this podcast and other policymakers scratch their head and think, “Why aren’t we doing more of this?” This seems so much more beneficial to our constituents than something like the traditional lottery. What was the state that first legalized this? Do you remember? Was it Illinois, before it was federal?
Adam: There was a legal loophole in Michigan that allowed credit unions to offer this product, even before the 2015 change in legislation.
Meb: It kind of went under the rug. There weren’t a lot of people when I would talk about it on Twitter and elsewhere that really were either, A, familiar ever heard of this idea or B, aware of the legislation. All right, so you guys launched. The app is awesome. By the way, are you cheering for the prize to pay out or is that going to be a dark day for you?
Adam: The way the prizes work is the jackpot prize, we are able to offer because we partner with an insurance company. So we are basically paying the insurance company a premium, no matter what. So if someone wins, it’s not Yotta paying the prize, it’s the insurance company paying the prize. And this also helps with trust with our users. So, a lot of user are like, “Oh, you’re rigging the numbers,” things like that. The reality is, we have a double-blind system with the insurance company, but we want someone to win. It would be good for us. We have no control over it because of the way that the system works on the back end, where the insurance company picks the winning numbers, we don’t, and the insurance company has no access to the user’s picks. But if someone wins, that would be great publicity for us. So, that would be wonderful.
Meb: I was thinking about this as you’re talking about it because Buffett for the listeners, investment peeps on the show does a lot of this not CAT bond, but sort of insurance for these pretty rare events like lottery-style events. I’m sure he would like to partner with you guys. He would probably love this idea, savings. So you launched, the app’s awesome. You can sign up, it’s so clean and simple. What’s the rest of the year 2021, 2022 look like? Are the big focus just acquiring customers? How do you get the word out? What’s the future look like?
Adam: A lot of its focused on acquiring customers. And then the other, I guess half of it is focused on building a better product from both an app fun standpoint, but also becoming more of a complete bank offering. Whereas, right now, it’s this very simple limited savings account. And so, for a long time, there’s just me and my co-founder on the team. We’ve been growing the team, hiring in the engineering and marketing departments primarily. And so, the focus over the next six months on the product side is adding things like a checking account, in addition to a savings account and a way to spend from the account, a debit card, things like allowing users to open joint accounts, allowing users to designate a beneficiary on the account.
So there’s a lot of these basic banking services that our users are asking for and that we need to have in order to be a place where people want to put more of their money and do more of their banking from. So that’s kind of one side of the coin I guess. On the marketing side, our growth has been primarily driven by referrals. So if anyone refers a friend, they each get 100 tickets into the next week’s drawing. That’s really driven almost all of our growth so far. We are now focused on other channels and exploring how else can we acquire users cost-effectively. And so we’re going to be experimenting with lots of different things. One thing that’s worked really well for us so far, in addition to referrals, has been partnering with influencers, especially YouTube. So, if you look us up on YouTube, there are a lot of videos about us and a lot of people signing up through those referral codes. And so doubling down on the influencer strategy and looking into other channels, in addition to accelerating referrals.
Meb: Well, good, listeners, let’s see if we can beat all those YouTube influencers with the code “Meb.” At one point, when Betterment rolled out their new checking feature, I was their number one referral, and I don’t get anything out of that. Let’s see if the Meb crew can show up in force. I think there’s a lot of in my mind incentives in the investing world to the concept of everyone talks about being an investor and having a long-term time horizon. They just don’t. For the most it’s a fallacy but the ability to align your investing horizon really with what you say you will, which is usually for most people in terms of decades, rather than months, quarters, years, forget about Robin Hood, hours, minutes. That could be an interesting angle for you guys to one day as well. There’s Yotta Savings, Yotta Investing, where you say, “Hey, look, you invest a certain amount, we’ll be able to consistently put you in a basket of ETFs or something.” Is that something you guys have brainstormed at all?
Adam: Yeah, we definitely have it on the roadmap. Likely not in the next 6 to 12 months but beyond that, it’s definitely something we’re going to be revisiting. I think there’s a lot of low hanging fruit we know we need to get done and things we know we need to do and things we know our users are asking for in the near term. But that’s definitely something that we have on our minds going forward. I mean, what else can we do to help people financially and give them the ability to do all of the things they want to do from one place.
Meb: There’s an area of investing that still is yet to be disrupted, that’s multi-trillion, and it’s full of so much garbage. It still makes me nauseous, which is the traditional annuity space. And so there’s so much fat in just nonsense where people get paid these massive commissions. I think the average annuity costs in the U.S. is 2.25%. The actual annuity structure for like a variable annuity, this concept of having essentially like a personal pension, gone are the days of defined benefit, where my parents’ generation, I’m sure yours went to go work for a company, they’re lifers, they got a pension, work hard, put your head down. Great. Well, 2020, that’s not the case. And so, the ability where you have to take control of your own retirement and future, I think is even more important. So this concept of a new annuitising, but investing, so not just saving, but also investing it. The cool part from the company perspective is you can come up with an equation where the cost of acquisition for the client versus that clients’ value because you end up with 10, 20, 30 years of stickiness. There’s some companies that have figured out, Fisher Investments is the classic one, where they’re willing to acquire a client for like 10 grand, and that works out still. What else are you guys brainstorming? What else are you thinking about it? How big is the team?
Adam: Right now, we’re still small. Four people, we’re growing quickly. So, hopefully, by the end of the year, we’ll be more than that.
Meb: What are you hiring for, by the way? If we got any listeners, is it engineering? Is it marketing?
Adam: Yep, those two buckets primarily. In the near term roadmap, I got into some of the banking type features we’re looking to add on the app itself. One thing that has worked really well for us and has helped us grow so quickly has been creating a very social feeling experience in the app, so people want their friends to join. We do it a bunch of ways, but we find that… So we have this leaderboard in the app where during the week, you can see how lucky your friends are this week. At the end of the week, you can see who the biggest winner was. So we find a lot of people engaged with their friends, either offline, just texting each other like, “Oh, do you have the number,” things like that. So we’re trying to make the app as social an experience as possible while preserving, you know, privacy. There’s a lot of sensitivity around finances and privacy. But an action people typically do with the lottery is play with friends. They pull tickets together, and they can win together, and things like that. One of the big features we have coming out, hopefully pretty soon is the ability to create groups with your friends, share tickets. If you contribute 100 tickets, I contribute 10, if we win, we each win pro-rata to the extent we contributed our share of tickets. We are focused on helping drive that social experience as much as possible. So hopefully, now you want to invite more friends because you want them to join your group and it helps with our growth. So we’re very focused on the social piece.
Meb: Good. Let me know what we can do the Meb group. I’ll join and get a big “Meb Faber Show” podcast group of lottery winners. How does the actual drawing work, by the way? I grew up going to Bingo in Kansas where they had the old school cage that you would roll. Do you guys have a Sunday Happy Hour Party or do you just draw numbers out of a hat?
Adam: I wish. That would be fun. Maybe one day. So right now, the way it works is, we have weekly contests. Every week, there’s seven winning numbers that get revealed. And the way we do it is we drop one number every night at 9:00 pm Eastern time, through right now, it’s just an animation that happens if you open the app. The idea here is to make it fun over the course of the whole week. So maybe it’s Thursday, three numbers have been released, maybe, Meb, one of your tickets is 3 for 3. So all day, you’re like, oh, man, you’re looking forward to that number and staying alive for the 10 million, and maybe we’ll talk to people about it. So the way we do it is we drip it over the course of the week. So you find out how much you won for the entire week on Sundays. And on the back end, the way the drawing actually happens is we work with this third-party insurance company, and they’re the ones choosing the numbers.
Meb: I think you just need to do a live stream NBA style, you put the entire ping pong balls and a machine and shoot them out. I wonder if anybody would watch. I imagine they would on days six and seven if they’re getting close.
Adam: We’ve thought about it. It’s on our roadmap for launch. It was a bit of a heavier lift. But HQ Trivia did if you’re familiar with that app, they created a total must-see experience at 9:00 pm. And it really was popular. I think a trivia game lends itself to being more engaging than does the number drawing. But that’s not to say we can’t figure out how to make it engaging or more engaging than it currently is.
Meb: What happened to HQ, by the way? They were a hot item for a while. Did they just Phoenix and die? Are they still going? What’s the deal?
Adam: They’re still around. They shut down for a while. And then they got some extra funding and, like, relaunched. One of their founders passed away a couple of years ago, while they were still pretty big. So I’m sure that was a tough thing for the company to go through. I’m not really sure what else happened. But for HQ to work as a business, it needs to have users check the app every day and be engaged. And so, if you’re kind of a fad or you are one of these products that’s faddy, if all of a sudden people stopped engaging because they kind of get tired of it, they kind of lose out from that. For us, you don’t have to check at 9:00 pm to get value from it, right? Like with HQ, if you didn’t check at 9:00 pm, you can’t win anything. You basically might as well not even use it. With us, you could check the app on a Tuesday, see how much you won, check the next Tuesday.
Meb: You might not even know. I just checked my account one day and have $10 million in there. You guys are so new, it’s so short, but you’ve been having some pretty astonishing growth. What’s been the most challenging moment so far? Has it been building it, putting together a team? Has it been COVID?
Adam: The biggest challenge, I would say, for me, personally, I’m a first time founder, it’s my first time going through all of the company building processes. It’s a lot to manage in terms of hiring and investors and all these company things you have to deal with. I would say that’s been challenging, but just take some time to get up to speed on all those things. I think from a company perspective, one of the big challenges we have is, as a consumer FinTech company where people need to trust you, you know, people are downloading our app, and they’re linking their external bank account, they’re depositing their money, we need to establish trust. And as a new company, it can be tough to get people to trust you. It’s a bit of a chicken and egg problem. Because when we launch, there’s no app reviews, there’s no press coverage, there’s none of that stuff. And so, who is that first person that’s saying, “Oh, I’m gonna download Yotta. I’m going to Google them. Nothing comes up, and I’m still gonna trust them enough to get started.” So solving that trust chicken and egg problem has been challenging. And even now, I mean, we have 2,000 reviews in the App Store, 4.9 stars, we have press coverage, we have a lot more credibility now than we did four months ago when we launched. It’s still every day trying to figure out how can we build more credibility because we’ve got to get people who aren’t signing up because they’re like, “Oh, this is a new thing. I don’t know if I trust it.”
Meb: I was just thinking in my head, it reminded me of the old HQ. As you think about the trust, you know, I mean, so many people in their savings and credit cards and elsewhere, there’s a lottery aspect, but they also love the rewards. I was just thinking in my head, I was like, “I wonder if you couldn’t get some companies to somehow sponsor some of the weekly drawings or do some where it’s a sponsored by Perrier, but there’s also prizes and things too anyway.”
Adam: And we’ve thought about that as well.
Meb: The worst thing that can happen is you come on my show because I just distract you with 20 horrible ideas in extension everyone’s company.
Adam: So far, you’re on point. You’ve bid on some things that are on our Trello board on our priority list.
Meb: What’s been your most memorable investment over your lifetime? You got a background in what? Web development, a stint at Goldman pre-starting this company? Anything come to mind, good, bad, in between?
Adam: Do you mean like monetary investment, time investment?
Meb: It could be good. It could be bad. It could be, look, I bought a stock when I was eight, it went to zero. It could be, I invested in this pizza company in New York and Davey Day Trader showed up and we made a ton of money. Or it could be “Hey, I bought all these shit coins and they all went to zero, anything. Something’s just memorable.
Adam: A non-financial investment, I would say is I left Goldman to learn to code. And that’s been tremendously valuable. I don’t think I’d be able to do what I’m doing right now if I didn’t do that or have that background in programming.
Meb: And how did you do it? Do you go to school or self-taught?
Adam: I had taken a few classes in high school, but not enough to really know what I was doing. And then didn’t do any of that for four or five years. And then I did Flatiron School. It’s an online and an in-person coding boot camp. I did it in-person at the time. And there was a 12-week program. That I think was one of my best time investments in terms of developing a skill. Financial investment, before starting Yotta, I was very interested in the health insurance industry. And I thought there might be an opportunity to do something in that space. And ultimately, I ended up doing it myself. But there’s a public pet insurance company that I invested in a couple of years ago, and it’s done pretty well since then. So, that’s the one that comes to mind. It’s not that exciting of a story or anything.
Meb: I say it somewhat astonishing. I mean, I think our dog at this point is worth about $50,000 in insurance premiums. I consistently asked my wife, I said, “Why is this so expensive?” So clearly, it’s a good business model somewhere, seems like opportunity as well.
Adam: Do you know who your provider is?
Meb: I don’t. I just see it get debited out of my no interest-earning Bank of America every month somehow. So, when Yotta gets set up for payments, you’ll see where it’s coming from. Adam, this has been great. Where do people go if they want to find out more about your company, download the app, where’s the best spot?
Adam: So, you can go to our website which is withyotta.com. From the website, there are links to download the app. But if you’d like you can also just search in the player App Store for Yotta Savings. That’s the best place to find us.
Meb: Awesome. Users, remember code “Meb.” It takes about five minutes to sign up. You can join me in the groups when they roll it out. Adam, thanks so much for joining us today. It was a blast.
Adam: Thanks for having me, Meb.
Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us email@example.com. We love to read the reviews. Please review us on iTunes and subscribe the show, anywhere good podcasts are found. My current favorite is Breaker. Thanks for listening, friends, and good investing.