Aer Compliance: Redefining Compliance in Crypto and Finance with Owen Rapaport

Jake Aaron Villarreal: Welcome to our podcast from the ground up where we interview startup founders exploring their journeys, their successes, challenges, and lessons learned. We hope you'll be inspired in discovering what it takes to build a thriving startup. I'm your host, Jake Aaron Villarreal, and here with us today we have Owen Rapaport, the co-founder and CEO of Argus, a company that's helping put an end to insider trading. They went through Y Combinator and they've got a fascinating story. Hope you enjoy. Owen, welcome to the show.

Owen Rapaport: Thanks so much for having me, Jake. Pleasure to be here.

Jake Aaron Villarreal: Great. So a little bit about Owen. Owen is the co-founder and CEO of Argus, which is the first employee trade compliance software for digital assets. They work with the largest banks, funds, market makers and exchanges, as well as the government to combat insider trading and front-running. So Owen, I guess before we dive into your company Argus and the incredible story that it is, give us a little background of where your life started. Where are you from?

Owen Rapaport: Absolutely. So I'm calling in today from New York, and indeed I'm a native New Yorker. Born and raised here in Manhattan, mostly spent the life here. So went actually overseas to the United Kingdom both to my undergrad and in fact where I met my co-founder as two junior employees at Bain. But other than that, it's mostly been New York for me.

Jake Aaron Villarreal: That's great. Well, I spent some time, as we talked about earlier, in New York as well. It's a fascinating story of what has happened with the people that are originally from New York and the people that go to New York, but it's always full of energy, diversity, culture. What led you to go to school abroad at Oxford? Incredible school, by the way.

Owen Rapaport: Yeah, so I studied Classics, which is Latin and ancient Greek. And in particular at Oxford it's, you know, across literature, history, and philosophy. And so on the one hand you say "Classics" sounds very narrow. On the other hand actually the Oxford degree in Classics can be quite broad, and you really are covering over thousands of years of a period, and really reading original texts, thinking sort of you know the thoughts of some of these great philosophers, and looking a lot at the historical patterns in order to ask pretty interesting questions. And so I said "I'm studying Classics, it's a pretty cool place to do it over there in the UK." And that inspired me to head over.

Jake Aaron Villarreal: What's the big takeaway that you got from going abroad? There's younger students that might be listening and just you know, the experience of going to school in the US is great, but going abroad is a different animal. What was it that you took away from that experience that you could share with others?

Owen Rapaport: Yeah, I think it opened my eyes more than anything. I showed up an 18-year-old from New York thinking that, hey, I had seen a lot (and of course that's what every New Yorker thinks, right). So I probably was maybe a little more jaded than your average 18-year-old. But I showed up in the UK and I realized I had missed an enormous amount of the world. And it was challenging undoubtedly, right, I was you know an American fitting into a British culture, but it was also fascinating. And I think really pushed me to grow and mature in a very short period of time. That's what studying abroad did.

Jake Aaron Villarreal: Yeah. Did it change your, your worldview?

Owen Rapaport: It made it less America-centric, undoubtedly, which is of course you know a good and a bad thing right. Here I am back in New York, so at the end of the day I'm a deep believer in the United States and the opportunities and in the environment here. At the same time, I think it showed me that there are other places that are as fascinating, as rich, and can offer in many ways a lot of the same things.

Jake Aaron Villarreal: Yeah, incredible. After graduating, you joined Bain. What was your role there at Bain?

Owen Rapaport: So I was a consultant. Just like everybody else that comes into Bain out of undergrad, basically you show up and they put you on a bunch of different projects. Those projects for me were everything from literally closing factories for an industrials company that had a global footprint and was saying "hey, we need to consolidate," right through to a 10-year strategy for one of the world's largest banks. Huge amount of exposure to industries I had never thought of. Some of them I'd never even heard of.

Jake Aaron Villarreal: When you were at Bain, at some point you got inspired and you left. And you left and you built Argus. What was the inspiration that you got when you were there that made you think "Hmm, I think there's something different or better that I'd like to try and do"?

Owen Rapaport: Yeah, so I met my co-founder at Bain and so Bain gave me an enormous amount, more than anything a co-founder. At the same time, at a company like Bain, which is 10,000 or so employees globally, it felt very clear to me that I was one small part of a much larger organization, and that I could spend my career there working my way up, gaining more responsibility, but that it might be slow. By contrast I said "hey, if I went and I founded my own startup, who knows how successful or not it will be, but at least I'm going to be making decisions. At least I'm going to be moving fast. At least I'm going to be learning a lot." And that actually was the inspiration. The inspiration wasn't the idea itself, the inspiration was "I should found." And I was very lucky to have a co-founder, a friend Omar, who was in my visa class and felt exactly the same way.

Jake Aaron Villarreal: When you think about your company, what was the inspiration behind the idea that started you and led you down the path of "I think there's something that we could do here in the space," that we're going to get into, and the reason why you did it? Tell us a little about what that was and, and why you did what you did.

Owen Rapaport: So once we said, "Hey we want to found a company, we're excited about building something," right, we then said, "And what matters to us right, and why?" And we thought about some of the problems that we'd experienced as employees at Bain, and then during some of the time that I spent in private equity. And one consistent theme for us was employee trading, employee trade compliance in particular. So the example is you work at Bain. Bain works, consults with most public companies, especially in the US, the UK, Europe. And of course, hey look, if you're consulting for Apple shouldn't be trading Apple shares, right? Who knows what you might know. And Bain applied that brush very broadly. So I in the London office couldn't trade Apple because there was a team out of the San Francisco office say, working with Apple. And that didn't necessarily make sense to me. I said "I get the need for controls, I get the need for compliance, but we want to make it good and easy for employees to trade in the appropriate and compliant ways."

And that pain point not just resonated with you know, me and with Omar my co-founder, but it also resonated with a lot of our friends right, who were in their first couple years at banks and hedge funds and asset managers. And we said "hey, there's a problem here." Now of course right, the question then is why crypto? Here I am talking about securities. And it's because we saw crypto as offering a new paradigm, a new way to challenge and build into the existing traditional financial world. And say "hey, maybe some of the practices and some of the ideas there could be improved and could be sharpened." So we said "in crypto is really where the opportunity is." And between the pain we'd experienced ourselves with securities and the whole paradigm shift that crypto represented challenging the financial world, we said "that's an incredible intersection we're working on."

Jake Aaron Villarreal: So what's the value proposition of your company Argus today, and what's it doing for financial institutions that may be interested in exploring it?

Owen Rapaport: So we come along and we say "if you're thinking about crypto, or even if you're just worried about your employees' behavior in crypto, you need Argus." Why? Because if you're thinking about crypto, transacting in crypto, acting in crypto in various ways, your employees are getting what's called Material Non-Public Information, MNPI. And that's a buzzword right, from the sort of world of financial services, where hey if you have this you got to be really careful. And it's a very established concept in the world of traditional finance right. So you come along and you say "I'm going to help Tesla do a merger," well you know something about Tesla, you shouldn't be trading Tesla. But those same concepts are just being pioneered in the world of cryptocurrency. Being pioneered both by the industry and by the government. And so when you have concerns about the risks that your employees are facing because of the information that they're exposed to, because of their ability to trade on that information, and you want to have monitoring of what your employees are trading in crypto, that's where Argus comes in. And we say "any exchange, any blockchain, if your employees have assets there, we're going to track it for you. We're going to make sure you have the capabilities to understand what they're doing."

Jake Aaron Villarreal: So historically because crypto has been newer in the markets over the last 10 years or so, what have companies traditionally been doing? And what's the impact, just for the layman that doesn't know, what's the impact to a company like a bank or a financial institution if their employees are doing insider trading?

Owen Rapaport: So the impact is very clear right. The question is what are the policies, what are the procedures that you had? And were they sufficient? And if the answer's that they weren't sufficient, then there's at the very least regulatory penalties. Whether that's from the SEC, from FINRA, or other regulators internationally who say, "Hey bank, hey brokerage, hey asset manager, you didn't have in place the proper control tools to make sure your employees weren't behaving in wrong ways." For the individuals involved, it very often is also a criminal matter, where suddenly not just the SEC but the Department of Justice or its international equivalents becomes involved and is bringing a case suggesting that this person actually acted so wrongly that they need to go to jail. So the implications can be really significant, which is why our product is so relevant.

What were people doing before it in order to address this? A lot of them unfortunately were burying their head in the sand and saying "it's crypto, it's new, it's cutting edge, it's not yet clearly a problem." And we've seen over the past two or three years, coming from the United States federal government as well as international governments abroad, a retort, which is "actually this is a problem, and you need to pay attention to it."

Jake Aaron Villarreal: Who are you selling your product to within a bank or within a financial institution that cares?

Owen Rapaport: Yeah, we sell to compliance officers and folks in the legal department. General counsels, legal, legal analysts, legal associates, that kind of thing. Those are the people that empower... that are empowered by their firm to focus on risk, right. In particular, risks like employee behavior, employee trading. And so we come along and a lot of the time we say "here's what we do" and they say "I've been doing this manually for two, three, four, five years, and it is so painful. And I am so glad that somebody has come along and has built this." And that can be a really exciting sale, to kind of open their eyes to what's possible.

Jake Aaron Villarreal: What are some company logos that you can tell us about that you work with, if at all, that people would know about?

Owen Rapaport: Yeah, so the first shout-out I would give right, is, is really to sort of some of our first big customers, Multicoin and Framework, who are two of the leading crypto venture capital firms. And they were really early in Argus right, they were you know beta testers and, and you know even sort of gamma testers right, and so on. They went through the full extent of the product and helped us mature it. And their use case is straightforward right, their VCs, they're, they're potentially also liquid trading, and they are very worried about all of the information that their employees are hearing and seeing. Because of course they know that their employees are always acting appropriately, but they need to be able to evidence that and show it to a regulator right, and show it to them clearly in order to be able to say "here's what we're doing and it's appropriate."

Now, since that initial start with funds, we've ended up working with a number of other firms. One example right, is we work with one of the largest US exchanges in cryptocurrencies. And they basically have so much material non-public information due to their listing practices, due to their OTC trading and so on, that they need this in order to make sure that employees are not trading in ways that they shouldn't be. In a similar vein, what we are just starting to see are traditional financial players coming into the space. And so we work with for instance a large US public company bank, a large international bank, as well as one of the world's largest hedge funds and market makers, all of whom are saying to themselves, "as we get more active in crypto, this is the kind of control that we need." Now I didn't give too many logos and too many names because it is compliance, and so forgive me for being cautious about that, but I can assure you that the customer bench right, is, is both sort of diverse but is also unified by a single view, which is "look, similar risks in crypto as in traditional markets, similar controls."

Jake Aaron Villarreal: It's really cool to hear that when you think about and want to get your opinion on where crypto is today, but more importantly blockchain, and how do you see blockchain impacting financial services, and what's really the benefit there? And where does your company come into play to support the ecosystem?

Owen Rapaport: So we have the privilege of working with some of the early adopters in the traditional financial space that are increasingly active here. And you're right to draw this distinction, Jake, between crypto and blockchain, because it is a distinction that they draw as well. And they think about crypto in terms of the tokens, the assets and the trading, but they think about blockchain as a technology. And it is such a repeated view and such a commonly held view in that world that blockchain offers huge efficiencies for them in their daily practice. And so they are actually increasingly adopting it. Despite all the negative press of 2022 right, despite FTX and so on, that move really continues. And that for us is inspiring. It is that original idea we had, changing and challenging the paradigm of financial services today in order to build something better. They're really taking that up and they're executing on it and they're doing that with blockchain today. They're adopting it for everything from settlement through to issuance right, and beyond. Where do we come in? We come in, I'd like to think, I'd like to hope, in order to legitimize and mature the space. We say "this is a long-standing, well-known control from traditional finance, and you should have the same in crypto because we are finally adults here and we are finally institutions here."

Jake Aaron Villarreal: What's your business model?

Owen Rapaport: So we're a very standard B2B SaaS business in that we charge an annual fee, often times in a multi-year contract. And then we basically are providing the services over that course of time. Now our pricing varies based off of headcount. So if somebody says "I'm a firm of five" (and some of our smallest customers are firms of five), then we're going to be charging them very differently than some of our largest customers who are going up to 40 and 50,000 people at their firms.

Jake Aaron Villarreal: That's great. How big is the market opportunity for Argus as you look into traditional financial institutions as well as newer crypto you know trading firms that are coming up? And I guess if you just look at your thesis when you started and where you see it progressing, like how big are you thinking?

Owen Rapaport: Yeah, now of course a lot of this will depend in the first question on the impact and influence of crypto over the medium and long term. And trust me, I wouldn't be in this business right if I weren't bullish about both crypto and blockchain. Because I do think that increasingly traditional institutions are saying "this is for us, what can we do here?" And they are evolving and adapting in order to use it. With that in mind, our core product today we think has a billion dollar plus TAM. We think that there are thousands and tens of thousands of financial services firms that need our product, crypto and traditional, and are saying "Where is this and can I get it today?" However, when we take a step back and say "What have we learned for now over two years of building, and where does this go?" that's what actually really gets me excited. Because I think what we've, we've, what we've seen and what's been revealed to us is that there are fundamental challenges in workflows, in software, in controls, in the compliance world around this nexus of employee activity. And we therefore think that actually crypto is a great paradigmatic example of how you can come in and disrupt this space. You can say "We do crypto and nobody else does, you should use our product." But even more, we think that there is that exact same playbook to run across multiple other verticals in the space of employee compliance. And that is a 5 to 10 billion dollar market opportunity, of building out more functionality for these same customers whom we already work with, in order to build this idea of compound cross-functional compliance.

Jake Aaron Villarreal: Wow. God, you know what, you know your market really well and you obviously know your product really well. Um you're excited about it, yeah I could, I could feel it. What's the, um what keeps you up at night about your company?

Owen Rapaport: Execution risk. That's it, right? And of course I say "that's it" like it's small, but it's huge, it's, it is the fundamental challenge. We know where we want to go. We are lucky to have backers like Y Combinator and CRV that believe in what we are building. But we know that we need to execute, right. And that's probably a similar refrain I imagine for many startups in our stage. But I'd say even more perhaps for us. The needs are there, and a lot of the times there's already some level of software there, right. So the need has been developed, it's been educated, people know it. Now the question is: can we build that 10x product in order to seize it? And that puts of course a lot of emphasis on every single member of our team. I'm grateful and lucky that we have an exceptional team. But it's always our team staying at the cutting edge and making sure we're truly a tier one group to execute in the best way.

Jake Aaron Villarreal: Yeah. Um Owen, is this your first startup?

Owen Rapaport: This is my first startup, yes. I uh was before, as we discussed at Bain and private equity, and straight into this. So no startups when you were in high school, early on. Okay, gotcha.

Jake Aaron Villarreal: Um what's been one word of advice from another founder that you've taken that you think is worth sharing that's really made an impact?

Owen Rapaport: It's that the highs are very high and the lows are very low, and what you have to do is average them out. Because in the moment you either feel like "we just closed the biggest client, we are on top of the world, we're the best company that's ever happened," you know. Or you feel like, "Oh my God, we lost the deal, we had this issue in the product, we're done, we're sunk," right. And it's very easy to feel like that when you care so deeply, you're so invested you know, emotionally, mentally, financially in your company, in your startup. And I think the view that "hey, you just have to look with a little bit of a longer time frame," "We lost the deal today, but we sure closed a big one last week" and average it out, is I think the secret to more longevity in this business. And look, I'm two and a half years in, so I don't know a thing about longevity yet, but it seems like it's going okay so far.

Jake Aaron Villarreal: Yeah, well it sounds something, from the outside looking in, it's going incredibly well based on our conversation so far. Uh I want to move to what we call "three questions" and that's simply that, it's three questions um with three simple answers. Um where do you go to think big or to brainstorm?

Owen Rapaport: I like that. At the gym. And so the answer is when I'm working out I, I'm not as focused perhaps on every little exercise I'm doing and I'm thinking long term.

Jake Aaron Villarreal: That's great. You know Steve Jobs used to walk around his campus with people he was solving problems with. What activity works best for you to solve problems?

Owen Rapaport: I think for me it's talking it out with other people. And I think that's just because I'm probably more of an extroverted thinker than an introverted thinker. And so sitting down with a couple of my colleagues and basically just saying "here's what we're facing, what can we do, how can we solve it" has always been incredibly helpful and has led us to come to what I think is a much better outcome and a much better answer than I could alone.

Jake Aaron Villarreal: What do you do to stay mentally positive when things are challenging?

Owen Rapaport: I'm very lucky to have a strong support network in terms of my family, my girlfriend, my brothers. And so I think a lot of it is just turning to them, being transparent, being forthright about what I'm struggling with, what I was mentioning earlier right ("we just had this huge product issue, we just lost this customer" that kind of thing), and knowing and hearing from them that "hey look, you'll get through this and we support you," that really keeps me up.

Jake Aaron Villarreal: That's great. Owen, this has been fun to learn about your company. What's on the roadmap for 2024?

Owen Rapaport: Product, product, and more product. As you can imagine, we're a very product-focused company, we're really excited about what we're building. And so it is very much taking forward that idea of "look, we found the solution in crypto, and here we are selling it left and right. How can we apply that same playbook in order to challenge other existing paradigms of compliance to build more, and indeed build better, and drive better outcomes for our customers?"

Jake Aaron Villarreal: That's great. For the listeners out there, we interact with 100,000 engineers a year. They might be interested in Argus or trying to find you. Where would they go to find Argus, and where would they go to find you?

Owen Rapaport: Best places are going to be LinkedIn and Twitter. So on LinkedIn and Twitter both of it is just Argus. And then me personally, catch me on LinkedIn, Owen Rapaport, you'll see it from the headline. Would love to connect with anybody interested in learning more about us.

Jake Aaron Villarreal: Great. And then lastly, as you look at growth, sounds like you've got that in place. What are some of the roles at the company you're trying to, to maybe fill it or add to?

Owen Rapaport: Superb question and that's one of the reasons I'm so excited to be on the podcast. We are hiring a range of engineers here in New York City. And so that's everybody from very senior engineering leadership right down to more focused individual contributors. We're looking for front end, back end, full stack and everything around that. So if you want to build what I think is a really cool product that has true impact on our customers, it'd be an exciting place to work.

Jake Aaron Villarreal: I love that. Well Owen, thanks so much for joining and having the courage to come on a show. Podcasts are a first for many, but it's something that we've gotten accustomed to in our world. So uh I appreciate you coming on. And to all, all of our listeners for listening, it means the world to me that you've chosen to spend your time with us today on this Friday. I'm Jake Aaron Villarreal and host of the podcast. Look forward to catching up with you all on the next episode. Until then Owen, take care, and to our listeners you too, see you.

Before we wrap up, I want to give a big shout out to all the entrepreneurs that have joined to make this podcast possible. And for all the listeners for listening, it means the world to me that you chose to spend your time with us today. I'm your host Jake Aaron Villarreal signing off for now, we can't wait to connect with you all soon on the next episode. Take care.

This show is sponsored by Match Relevant, a company that helps venture-backed startups find the best people in the market. And they do it in three simple steps. First, they sit down with founders to understand their story. Second, they tell their story into multiple candidate channels. And third, they schedule interviews within 48 hours. Find us at matchrelevant.com to learn more about how we do it.

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