Casey Fenton, Co-Founder of CouchSurfing
The Crazy Origin Story of Sharing Economy Pioneer Couchsurfing.com with Casey Fenton
Casey Fenton, like many of us in our 20s, wasn’t entirely sure where he would go in life.
Growing up in a small town in Maine, he started to think about this entire world that existed beyond the borders of his hometown, and all the experiences he had yet to have. One thing he knew for sure was that his small hometown wasn’t going to be offering him any of the new experiences he was looking for.
“That got me to start buying random plane tickets to anywhere in the world,” he says.
From there it was traveling from place to place, mingling with locals and getting a backstage pass to the world’s greatest cities. It was then that Fenton formed an idea for a business that would end up spanning the globe.
Today, Couchsurfing.com has more than 10 million members in over 20,000 cities around the world. When it launched in 2003, Couchsurfing was a revolutionary concept. It was one of the first businesses to truly harness the power of a sharing economy. Instead of spending money at hotels and backpacker hostels, travelers were instead offered a choice to stay in the homes of hospitable locals free of charge.
Since then, Fenton’s business model has been replicated a thousand times over by the likes of Uber and Airbnb, just to name a few.
We had the chance to talk with Fenton about his entrepreneurial journey, starting with being a backpacker to becoming the founder of a multimillion-dollar company with a reach that spans every corner of the globe.
- How to go through the hardships of starting your own business
- How to figure out which tasks to delegate and which tasks you need to prioritize as a leader
- Tips on creating and maintaining a massive and engaged community
- How to build an international reputation that people trust
- The most powerful drivers that’ll get you to scale your business
Full Transcript of the Podcast with Casey Fenton
Nathan: Hello, and welcome to another episode of the Foundr Podcast. My name’s Nathan Chan. I’m coming to you live from Melbourne, Australia, and I’m the CEO and founder of Foundr Magazine. Hope you’re having a wonderful day wherever you are around the world. I just wanted to thank you so much for taking the time and sharing your earbuds with me. And today, you’re in for an absolute treat. We have an incredible guest. His name is Casey Fenton, and he’s the founder of a little company that I’m sure you might have heard of called couchsurfing.com. If you’re not familiar with this concept, essentially, the little thing called the sharing economy, you know, Uber, Airbnb, and all these other kind of big, big, big startups now…they all run off this economy of people sharing and optimizing…utilizing resources that we all have, and, you know, they’ve been incredibly successful.
And Casey Fenton was one of the first ever, I guess, entrepreneurs and startup founders to really understand that concept of the sharing economy and really, I guess, started out with what he’s done with couchsurfing.com. Really, really interesting story. All the perils of running a startup, especially a first-time startup, and understanding growth pains and what to do and how to manage a massive community. Very, very interesting guy. A lot to learn from what he’s got going on, so that’s it from me.
Before we jump into this episode though, I just wanted to let you guys know we are working on a really cool project. It’s a coffee table book, and it’s going to have the best of the best interviews and best content from, you know, thousands of hours of content that we’ve built up and created over the couple of years since started Foundr. It’s going to be beautifully designed, so we’ll have, you know, pull quotes and content and advice from, you know, Richard Branson, Arianna Huffington, Tim Ferriss, you name it. Some of the best entrepreneurs on the planet that you’ve listened to on this podcast. If you would like to know more, you can go to foundrmag.com/book, and you can sign up to find out more. And this is something that we’re really, really excited about and would love your support. And now, let’s jump into the show.
So the first question I ask everyone that comes on is, “How did you get your job?”
Casey: Well, I guess that depends on what you call a job. I’ve had various jobs throughout my life, but right now, my job is, you know, entrepreneur. I am passionately working on multiple projects that I care a lot about, and it probably came from, you know, early on being someone who is independent and very creative and wanting to really try hard to invent. So it was probably either, you know, my parents, early teachers that kind of gave me that identity or kind of got it, I guess, on my own through trial and error and exploration and found that that’s where I thrive most.
Nathan: So you invented couch surfing. Talk to us about that.
Casey: True, yeah. We’re the founders of couch surfing. Couch surfing started as a dream back in the late ’90s for me. And I traveled the world on my own. I was from a small town in Maine. I grew up and I wasn’t sure, you know, where I would go in life. And actually, early on in school, I was studying the classic philosophers: Hume, Descartes, Kant. And I started thinking about free will, and I started thinking about the statistical probability that I would just end up kind of in that same small town of Brownfield, Maine. And I started thinking about the dimensions of experience, about intensity, diversity, and frequency of experience, and that got me to just buy random plane tickets to anywhere in the world.
And I started hanging out with local people and started to see that hanging out with locals…having that backstage pass to the world was what accelerated my learning more than anything else I’d ever done. And I said to myself, “I wonder if there’s a way to do this and not just do it myself, but do it with other people,” and the idea for couch surfing started to kinda coalesce. So then, I invited a couple other founders. And there’s many other stories along the way going, you know, in Egypt and Iceland that were formative in this…MVPs, if you will. And yeah, kicked it off in 2003. It was private. Not everyone could join. And then after only 100 people joined…2004, we decided to kick it off…me and the other founders…publicly.
Nathan: Gotcha. So is couch surfing…because this is massive, and I was really excited to hear that we would be chatting, Casey, because everyone knows couch surfing. Like, it is a thing, and it was, like, one of the first, you know, peer-to-peer kind of Airbnb concepts where, you know, it’s shared. What is the term that it’s really well known for? What’s a technical term? Sorry.
Casey: A technical term for what? Like, a sharing economy?
Nathan: Yeah, the sharing economy. Yeah.
Casey: The sharing economy? Yeah, sure.
Nathan: Yeah. So couch surfing was probably one of the first plays around the sharing economy using the internet?
Casey: Yeah. From what I understand and based on what I’ve seen, yeah. I think it was one of the first. Some people have called it the grand-daddy of the sharing economy. Something like that. That’s very cool to be a part of that. A lot of us had the idea together, like, at the same time, I’m sure. I would talk to different people and people said, “Yeah, I thought of that idea too.” So I happen to be a computer programmer and this kind of weird thing where I just won’t give up. So it happened that I could program it and kind of keep pushing it and, you know, keep pushing and making it go.
So yeah, true. I think it showed a lot of us…when we had that experience where we stayed on another person’s couch, people gave us hospitality, and we started to share our resources, share our time, share our lives with people that we had never met or never even imagined we could meet. That really inspired us, and we started all creating more companies together that would share resources and improve our world.
Nathan: So was CouchSurfing your first company?
Casey: No. It was actually my second company. The first company…it was when I was just getting out of high school headed to college. And me and a friend, we decided to create a company that we could…it would be like a jobs database. Kind of like a dice or something like that or, I guess, Elance or oDesk…Upwork as it’s known these days…some way that we could have a job repository. We could travel the world. The idea was, “Travel the world, and we can get jobs and do them from anywhere,” you know? Travel being a very important thing early on, we did a lot of exploring. And actually, I sold that company within six months of starting up. We sold it, got investment, and then I actually sold my shares in it, but that was a great learning experience. I went on from there to, you know, work at many other companies, but it was a great way to cut your teeth. And instead of going to college, I started a company.
Nathan: Gotcha. So when did CouchSurfing really start to take off? Because this has been a company around for, you know, a very, very long time, and you guys have gone through many ups and downs. And I’m really curious. You guys, you know, you had a massive community. Very, very community-driven, this whole process. Take us through the journey.
Casey: Sure, yeah. Like you said, a lot of ups and downs. A huge challenge. Probably just some of the hardest things I’ve ever dealt with in my life from a business and a more personal, I guess, perspective. All kinds of things. When you’re an entrepreneur, and you’re living and working with the people that you are running a company with, there’s a lot of things that go on there. So yeah. Started off in 2003 in beta. 2004, kinda got it off the ground and got 6,000 people signed up in 2004. And in 2005, I added in the groups and then the meetings functionality. I just stayed up late at night programming, programming, programming. For a week straight, I’d sleep for, like, you know, maybe two nights a week or something like that. I would travel and couch surf then layover and couch surfing this summer, in 2005, in my friend’s basement in Anchorage, Alaska.
And so I spent a lot of time programming at either Alaska or at a friend’s house in Hawaii. I’d basically just get my monthly costs to the lowest possible, drink as many energy drinks as possible, and see how many lines of code I could pump out in the shortest amount of time. And for me, it wasn’t about having beautiful code. It was having code that was scalable, and I could get it done quickly and go on and then do the other things like pay the bills or do an interview or whatever else. To me, everything was super, super utilitarian. At the time, it was really hard for me to delegate. We had started off as a non-profit, so it felt bad asking anybody to help out with anything, and I really had to learn how to delegate, how to lead over years because being an introvert, that’s not my natural state to read many books and talk with many people about such things, you know?
So over time, we kept growing. Every year, it would be, like, you know, a 3X growth-ish, and over time, it kinda leveled out a bit. I’m at 15 million members now. It’s been around for about 10, 12 years solidly. One of the more challenging stories is we started off as a non-profit. I, you know, grew up in New Hampshire, the state of New Hampshire, and just kind of on a whim, really, decided, “Oh, maybe we should register as a non-profit. I did a for-profit before. Maybe, like, a community…it’d be fun as a non-profit.” But later on, it scared me what a challenge that was. It’s not so easy just becoming a non-profit, especially for something that is trying to innovate, whereas CouchSurfing is definitely trying to innovate and, you know, replace its own trail.
Nathan: Yeah. So what happened?
Casey: So some people know this story, some people lived it with me, and members around the world, we all lived it together. It was not the easiest times. So we were trying to get 501(c)(3) status, which in the U.S. is status given out by the Internal Revenue Service, the IRS, for the charitable status. It’s like the holy grail, you’d say, of charitable statuses or of non-profitness. And we tried to articulate for four or five years to the IRS why we were charitable. We got the best attorneys in the country. We spent at least $250,000, if not a lot more on your lawyering and the time to try to get that status. And finally, after all this time, our examiner, the examiner’s boss, and the examiner’s boss’s boss got on the phone with me and said, “We deny all 10 ways in which you say you’re charitable. In fact, don’t even come back to us and try to appeal this anymore. We just do not want to hear from you.”
This, to us, looks like a way to help people save money. In fact, they were actually asking me whether people should be taxed on the…yeah. I was very surprised. It’s like, “I have not ever thought of that, so I don’t think that’s a very good idea. Please don’t do that.” So, like, they didn’t. Thank you, IRS. But it became very clear that we were going to have to convert. And when we started to really look at it more and think about it philosophically, we tried to see if there were grants out there. There were no cultural exchange grants, really, at maybe $30,000 a year. Not enough to run a company that’s a $2 million to $3 million run-rate a year, at least.
So we had to go about the hardest and most challenging, you know, conversion from a non-profit to a for-profit. And one thing that a lot of people don’t understand, don’t know, aren’t aware…because, of course, this is in the weeds, unfortunately…is that when you’re a non-profit and you convert to a for-profit, you can’t just leave. It’s not like you flipped a switch. You actually have to have someone from outside of the non-profit system buy the assets, buy the company out into the for-profit world.
Casey: So that was like a mind twister for us. “Oh, my gosh. How are we gonna do this?” Seems like an impossible scenario, and we can’t buy it with our own proceeds. You can’t buy it with your own revenue or donations or anything like that, and, you know, the time was ticking because it was clear that we needed to do it within, you know, a few months. So it was the hardest and most challenging and stressful time of my life, I think, but the good news was that we found a benchmark and OMAJAR who were top venture capitalists in the world who were gonna help us make it happen and help invest to get those resources out into the for-profit world, but then also do an additional investment so that we could properly fund the company and properly set it on its way in Silicon Valley.
And you gotta get a momentum going because it’s, you know, a new way of operating. Can’t use volunteers anymore. It’s a company, and we converted to a B Corp, a Benefit Corp, which was the closest we could get to, you know, a hybrid between non-profit and for-profit, like, kind of some of the heart of the non-profit, but then, also, like, the business acumen of our for-profit to make it sustainable. So that’s just kinda the beginning of the CouchSurfing story. I mean, it goes on and on.
Also, in the last few years, trying to make it work, trying to work the board to try to find a sustainable revenue model…I don’t think it’s materialized yet. Still looking. If you come up with ideas, I’d love to hear them. Love hearing from couch surfers on this stuff, always. But anyway, it’s been quite a journey and a journey that I learned a lot from in that I was able to use that learning to go on and start other companies and create more adventures.
Nathan: Now, before we move onto these other ventures…because I know I’m really keen to talking about Mast.ly and some other things you got going on. But around this tall couch surfing experience that you had, what I find interesting is the way that you speak of this journey, this adventure. You speak as if, you know, everyone was with it, like this massive community that you’ve garnered, you guys were doing it together. And I’m curious around that, like, because actually, before we did this interview, I was doing a lot of reading around couch surfing, and funnily enough, an article even popped up on my Facebook and it was just someone’s personal blog and it appeared that they had used to be, you know, a really, you know, really, really active…I’d almost say superfan in the couch surfing community, and they’d been, you know, part of it for many, many years.
But they detailed in the blog that as time went on, they felt that the community kind of dwindled and they struggled to capture what was orginally, apparently, you know…I wasn’t there, but it was a really magical experience when you used to couch surf. I’d just really like to hear your thoughts on that.
Casey: Oh, awesome question. Yeah, I guess I do get that question from time to time, and I think it’s a combination of a couple of different factors or forces. Number one, I think that when we all couch surf or when we started using the website, we had a magical experience together. It’s true. Like, we had never gone from, you know, feeling a bit isolated and not sure if the world cares about us to having people that we don’t even know, in a different country, different culture, taking us in, showing us the best of their world, and then, you know, hanging out and sharing perspectives on the world and updating your whole imagination about what’s possible. That’s super magic.
I think as time goes on and people experience that over and over and over and over again, I think that people are like, “Great. I experienced that, and now, sometimes people wanna go on and experience something different.” That’s what I’ve seen. I’ve heard people say that. And then also, I think, in more time, when we had more members, the more members we…I did, like, my best work to try to set the tone, and I think a lot of members did together…we tried to set the tone of what the ethos is about and what it’s like to be a couch surfer. As I started to scale, I don’t know if we were able to keep that in place. It’s a hard thing.
It’s like if you’re growing a company, right, and you’re trying to keep that early culture intact. If you don’t do the right things, it’s not gonna stay intact. So it’s a big question. Were we able to keep some of that culture intact? What can we do still to share what the essence of the couch surfing spirit is? People talk about couch surfing spirit. How can we make it so that everybody using couch surfing doesn’t think of it as just a free place to stay, but thinks of it as a backstage pass through the world where they want to have a special experience with other awesome people around the world?
Nathan: So if you knew what you knew now, Casey, what could have you done differently to kind of keep that magic intact? Do you think it would have been possible? I’m just really curious because community is everything, dude, and we’re seeing this more than ever within Foundr. And we want to be able to, you know, do the very best by our community that we can, but as you scale, it is, as you said, very difficult to maintain. So how can you protect that? What have you done differently in your situation?
Casey: That’s honestly a super awesome question there. I’ve thought a lot about this, and I’ve hung out around campfires talking about this very question with people, like, probably hundreds if not thousands of people around the world. Well, there’s a couple different answers in that. One, it can be, like, “Well, we just need the right materials on the website. We need to have a video or we need local ambassadors who are just gonna tell people about it.” I think those are good solutions.
Nathan: You didn’t have that?
Casey: We did. To a great degree, we had all kinds of…but it wasn’t like somebody had to pass a test and it improved if they knew that material. Maybe they heard about couch surfing and they were stuck somewhere and they thought, “I need a couch right now. I don’t know what the culture’s about, but I need that couch. So I’m just singularly focused on getting my need met of safety and connection.” And, “Okay, I know there’s a culture, but I’ll figure that out later.” Right? So this kinda depends. I think the easiest way to make sure that a community exhibits the right behavior is give people feedback on it.
It could be that when you have a reference. You simply ask, “Does this person make you feel like a hotel or did they make you feel like a person?” And, you know, you could slide the slider either way, but it’s just a super simple way. People…the first time they get that feedback and it says, “More like a hotel,” well, then they’re going to start to think about what that means, and they’ll kinda self-police. And they’ll start to look around and start to think to themselves, “Well, how do I send the right message? What would it be like if I were treating that person in the way that they wanna be treated?” I think that’s the most efficient way in which to get that done.
Nathan: And do you think you would have paid maybe more attention or maybe heavily onboarded people more, you think?
Casey: Like, if I had it to do over again, I think yeah, I would go in this direction. I think that I would have onboarded people and had them go through a couple little quick screens that make sure that whatever the one, two, or three most important things we need people to know and do, make sure they at least know and promise to do those things.
Nathan: Gotcha. So what happened next? You did a first round of financing led by Benchmark and Oneida. What happened next? Because you guys had IPO plans.
Casey: Right. Well, we had all kinds of plans. I mean, the sky’s the limit, right? We didn’t know what we were capable of, but we were very hopeful. We brought in, you know, some of the best venture capitalists in the world, and we did our best to increase the numbers over time. I was thinking about this other company, Wonder. Wonder being kinda similar to CouchSurfing, but different, of course. CouchSurfing being a backstage pass to the world, Wonder being a backstage pass to your identity and your reputation. I mean, we don’t know what the world’s like, but when CouchSurfing is there, we know we can tap in and find out what it’s like.
But a lot of times, we go through life, and we don’t know what we are like. We imagine, but we don’t know how we’re coming across to other people. In fact, there’s this fog of causality, and it might say, like, “You can’t quite understand what the cause and effect is in our life. Like, what is causing people to experience us in a certain way? And that really was perplexing me. For a long time, I was thinking about running a revolution, and I was thinking, “I can’t grow if nobody will tell me what they really think of me or how they’re experiencing my leadership or just my day-to-day interaction.” It would be such a powerful experience to get feedback all the time on myself…on life’s most important questions.
So I started working on that, and then I decided to work on that full time. That was when we decided we were gonna hire a CEO for CouchSurfing to…because I had only scaled a company with like 30 to 40 people, and the CEO we hired had scaled companies with hundreds of people. So I said, “That’s awesome. I would like to learn.” But then I also decided to go on and do my own. I think I had been working at CouchSurfing at that time for about nine years at that point, right? So it was time for me to try a different, potentially larger challenge.
So been working on Wonder app for a couple of years now, and I’m getting closer and closer every day. It’s 360-degree feedback on life’s most important questions, average to anonymous. You can discover what other people think of you, and that’s a beautiful thing. That’s really interesting. And then once you capture your reputation…most people have a pretty good reputation…you get to share that with the world to accelerate your relationships and transactions.
So it starts off with a “discover your reputation,” and it’s a long-term universal reputation play…universal reputation being that, like, holy grail…again, that you hear in the venture community as the holy grail. People have been trying to build for a long time, but no one’s been able to do it. If you build it, they will come, and then nobody came. And then when we were at CouchSurfing, we had companies like LeGiT Co. and TrustCloud approaching us saying, “Well, can we access your data? Will you share your data with us, and we will create you a universal reputation for the sharing economy?” Our response was like, “Well, we don’t know who’s gonna be the one that’s gonna win this battle, so we’re not sure on that front.”
But then also, that’s our mote. Should we be afraid of sharing our data and we’re not gonna have what we have here, you know? That’s a typical business kind of fear, right? So everybody gets paralyzed and nobody knows how to move forward. So I said it, finally. Thinking about that problem for a long time, and I thought that you can get there. You can to universal reputation, but you really need to arrange the game mechanics such that it’s the right kind of give and get spiral loop. So if you give feedback, you can receive feedback. And that give to get unlocking, that can be a powerful engine that will get us to scale and create our dream. So been working on that for a while. That’s been one of the bigger challenges I’ve ever worked on as well because it’s kind of a long game if that makes sense.
Nathan: Yeah. Gotcha. So before we move onto what else you’re up to, where are you at now with CouchSurfing and what are the plans? I know you said you got a few, but you can’t reveal, but yeah.
Casey: Yeah. Yeah. So I’m not involved in the day-to-day basis anymore, so I can’t really comment on what the day-to-day plans are, but I’m hoping that CouchSurfing can find its way and just keep growing. I think that I want to have a backstage pass to the world available to more and more and more people. I’m very, very thankful that it is there and it’s able to bring that value to the world. Like, if somebody wants to travel the world and they want to experience a little culture, CouchSurfing’s there, and it is ready for anybody to use it. That makes me very happy.
I wish we could grow it and bring that to more people and make it work for more people. Right now, my fear is that maybe not enough people can use it. It’s harder to find couches than maybe we’d like it to be. Of course, we wanna continue to make it easier to find couches, and we always have and we always will over time.
Nathan: Awesome. So what are you working on now? Tell us about Wonder. Tell us about Mast.ly. Tell us what’s happening.
Casey: Yeah. So I had just mentioned a little bit about Wonder, the 360 feedback app. It’s a long game. Like, it’s gonna take a long time to figure out how to do universal reputation, so I’ve been working with folks at Harvard, Stanford, MIT, Columbia, and at Cornell, all these different schools, academics, some really, really inspiring folks who have brought a lot of really great technologies to the world, and they’re advising us on this project. It could take a few more years. I don’t know, but we wanna make sure that, you know…they say that the number one predictor of success of a startup is timing, so we wanna make sure that we’re there at the right time.
So we’ve optimized the companies such to do that, and as we built the company, we knew that it was gonna be a real big challenge to be able to take on universal reputation and, in fact, it wouldn’t be, like, straightforward, like, “We know we gotta build this product and we gotta get different people who can build that kinda widget. Okay.” There are certain projects that are maybe easier or certain parts of them are easier. This one, it was blue sky, blue ocean. You don’t know how this needs to work.
We understand that if you can have a repository where people feel safe about their reputation and if they have a theory, they can control it, and you solve all of the game mechanic’s problems of people gaming the system. That’s super valuable. That means we can accelerate our lives. We can improve our transactions and relationships. It’s super important, but it might take a while to get there. So we built a new equity system when we built this company. We said, “We’re gonna reserve 75% of the company for everyone who works on it, and everyone’s going to record their hours with their hourly rate over time, and we’re not gonna be afraid of adding people to the projects.”
Because it’s not like we’re doing stock options where it’s a big deal and it’s all these problems and people are gonna get some kind of ownership, and then there can be all these stockholder’s rights and all that stuff that…We just totally separated financial upside and control and said, “We’re just gonna give away a lot of financial upside to harness and inspire as many people as possible.” I always consider it, like, the shower moment. You’re in the shower, and you can be thinking about anything, right? And suddenly, you’re like, “Oh, the problems of the day on Wonder. Yeah. That’s what I wanna think about right now because I’m aligned with that equity.” Right?
Or you’re laying in bed late at night and you’re just thinking or you’re kinda going to sleep and you’re like, “Boy, that would be great if we could solve that problem of universal reputation. Let me keep thinking about it because I know that I’m an owner of that. I am…” And we made it so you can see your ownership in real time. You could see it in this dashboard, and that really inspired a lot of people to, you know…it has everybody recording their hours and their time and all that. They would see, “Wow. I own 5% of the company. This is awesome. I am like a founder.” So I gave away 75% of the company from day one, and…
Nathan: Yeah. Wow.
Casey: Yeah. You know, it was a bit of an experiment. We didn’t know exactly all the knobs and dowels we needed to create, but over the course of three years and other people begging us to use the technology…and then we gave them the technology to use it as well, which is a whole legal stack plus a technology stack. And then we spun it off, and now we have a company called Mast.ly, M-A-S-T-dot-L-Y. And it is bringing this technology in the Mast.ly way to the world. We already have about 10 customers, about 5, at least, that are paying, on our way to 20, so it’s kind of a sass you would say.
It’s doctor as a service or it’s legal as a service or you might even say equity as a service. Pretty cool when you can bolt on an equity system onto any company or any project or any partnership or any full proprietor. Like, it could be a few people get together. “Hey, let’s dabble on this product or project or whatever.” And then we all sign the docs together, and we’re all part of this project in Mast.ly. And then we can press the button, and now, all of the sudden, we’re a fee corp, and it just follows right through, you know? And the whole equity thing…
Nathan: And sweat hours actually kick in.
Casey: It’s when hours start in the very beginning and follow straight through. You don’t need to have, like, a whole big, crazy, you know, legal change along the way. We just handle all that for you. Makes it super easy to even focus. Instead of focusing on the, “How am I gonna build this company and fundraising…” As a founder, you have, like, 10 important things to focus on.
Mast.ly helps reduce that number down to about five. It really does cut through a lot of the distraction, and it adds a huge amount of transparency to the product. Not everybody can see what their percentage of ownership is. What size is that sweat pool compared to all the stock in the company? And then everybody can see what everybody else has too. I mean, there’s a bunch of knobs and dowels and options, but generally, that’s the default setup. So creates for more trust in a company and it kind of creates a, I would say, the Mast.ly way of doing things.
Investors can be more satisfied and feel better that they’re using a standard and, you know, a proved way that they like and that founders can feel good that they’re giving something or using something that’s fair, and then it’s inspiring and transparent. And then the contributors, employees, and contractors, and advisors, all those people feel good that it’s tax optimized. We don’t have a situation where it’s so complex from a tax perspective that the company can’t even advise you and you don’t even really know what’s going on.
And then finally, in the end, you find out all the equity was clawed back and only the investors got anything. This system makes it really clear what’s gonna happen when and in the future. So something I’m really, really proud of, and we are looking for beta testers right now.
Nathan: Wow. That’s really exciting. Just on that, I’m really curious, do you believe all startups should be giving out equity to their employees? What are your thoughts on that whole front?
Casey: Well, see, it’s a really challenging question, and I had seen…I mean, I read about this stuff every day, all day. All day is a hyperbole, but I read at least an hour on all of the articles coming out on this, and in recent, previous is a lot of content on this subject. So on one side, you’d say, “Well, earlier employees aren’t as good as later employees.” There’s a thought in Silicon Valley and elsewhere that really, employees are more generalists. They’re not as skilled. And it’s really the later employees that build the…you know, take it from something okay to something dynamite that’s worthy of a sale or an IPR or whatever.
A flip side of that would say that, “Well, it’s really the early employees that took all the risk to get it to that shiny gem state or, at least, look like it’s kind of a diamond in the rough.” That you could say…those later, more skilled folks said, “Oh, yeah. That thing’s valuable. Thanks for optimizing it, and now, we’ll take it from here.” I think it’s equal. I think both are valuable. You need both. So to me, I would say absolutely, people early on should be offered equity. And not many people know this…it’s becoming more well-known, thank God…is that early equity is often “clawed back.”
So you’re given some kind of options, and you’re told maybe that this is a percent or two of a company, and you’re like, “Great. This is exciting.” But then you find out later that those options…you know, maybe you were let go or you decide to leave in a couple years. You only have 90 days in which to purchase the options. So that means that after 90 days, those options are just vaporized, and most people can’t afford those options. They could be $100,000, and those are theyou wanna play in.
Nathan: Yeah. That’s really dodgy, and that’s what a lot of startups do.
Casey: It is. Usually, I always like to say that founders don’t understand. Especially if they’re a first-time founder, they don’t get it. And most second-time founders are like, “Ah, I don’t like that. Can’t we fix that?” But then the lawyers say, “No, no. It’s just the way it is.” And there are so many other problems to solve that’s just…you can’t slow down, but by the time you’re a third-time founder, you’re really annoyed with us and you see…and because you realize that it’s not really a win-win. It’s kind of a shell game. You’re like, “Oh, let me give you this ‘equity,'” and then it disappears later. You do that enough and people are gonna get jaded. They’re not gonna believe in that equity anymore, and they’re not gonna try their hardest. They’re gonna say, “Show me the cash,” and that is not a great way to align a team to solve a hard problem. Not even close. Passionate about that.
Nathan: Yeah, yeah. I can see, yeah. So you’re obviously on the side that you should be, and you should do it via Mast.ly, like, a system where essentially, you get what you put in. Sweat.
Casey: Yeah. I think that the best system is a system that’s fair, that’s transparent as far as it can be. People can feel inspired by it, that they’re gonna try really hard, that they can believe in what they think they’re gonna get later on. If all of those things are true, we’ll have a system that people believe in overall and will work hard toward, and everybody will be thinking like a founder. That’s the kind of world we want.
If everybody’s thinking like a founder, you don’t have to go and do micromanaging. It instantly follows. “Oh, okay. We have a company. It’s worth $10 million. I can see right there, I have this fraction of that fraction of the equity pool. It’s worth that amount so far today, let’s say, and I want that number to go up. Okay. How do I make that number go up?”
Well, I guess it depends on the value of the company. Well, how does a company get a value? Then, I guess, people who know about such things see that it’s doing something valuable. Okay. So you need to create more value. True value. Not fake value, but true value. And then everybody’s thinking around and, “Well, I’m making decisions every day. Are these decisions I’m making making more value in this company for this company or not? Or am I basing my decisions on, you know, politics, ego, you know, making more cash, whatever?”
Once you get everybody thinking about that in a line and you can create the right alignment in a central system, it could be very powerful. People start making all the right little micro-decisions, and that all leads up to something down the road that’s much different than it would have been otherwise.
Nathan: Yeah. Especially in the early stages, getting your team aligned and finding that right fit is so extremely critical, especially once you’ve passed the MVP stage and, you know, you’ve found fit. Yeah. Like, it’s so key to get the right people on the bus. I’m curious. You know, something that, you know, one of my mentors always said to me…he said to me, “You know, Nathan, just be very protective of equity. Don’t just give it away. If you can hire, hire outs. Hire services. If you can, share profits.” Those kinds of things. What are your thoughts there?
Casey: I think that that’s an antiquated perspective based on the old system. The old sweat equity system or the stock option system is generally like this. A board decides to set aside 10% of company for stock options. Now, CEO and, you know, leadership team, whoever says, “Okay, great. We got 10 million units, which is 10% of the company, and we’ve gotta give that out, and we gotta get there. We don’t wanna have to go back to the board and ask for more because that’ll be diluting everyone. That’s not gonna be fun.” And so now, I have a scarcity mindset. Okay. So now, I’m interviewing employee A. “All right, employee.” And you’re thinking, “What’s the smallest amount I could give this person and still get them to work hard?” And so on.
So that whole system isn’t inspiring. I think it’s much better when you say, “Hey, everybody. Look at this pool. It’s 15% of the company. It’s worth $1.5 million, and we’re all participating together, and we’re all seeing, in real time, what portion of that pool we have. We could add another person to the pool. Great. Add five more people. Fine. Not a big deal. That gets away from that scarcity mindset and also gets you away from…You’re bifurcating control, and financial upside, you could say, “Hey, let’s share around a lot of that wealth.”
But, you know, we don’t have to have…A lot of attorneys are afraid, “Well, if you get too many owners in the kitchen, you’re gonna have chaos, stockholder’s rights. People that throw wrenches in the works could hold you hostage. Whatever. If you do it smartly, you can solve these problems. So the old system…it’s time for an update. People are really screaming for it in Silicon Valley and beyond, so I really hope we can all solve this problem together. We’re giving it a go with Mast.ly. I hope other people out there will try to solve the problem as well.
Nathan: Okay. Awesome. Thank you for answering that. That was great. So let’s talk about lessons. Are you still based out of San Fran?
Casey: Yeah. I spend at least half my time in San Francisco.
Nathan: Yeah. So you know a lot of smart people. You’ve done incredibly game-changing work. You know, the work that you’ve done with CouchSurfing for that…you know, a lot of people in this world know what that is. I’m really curious, you know, some lessons that you can share with our audience from building a legacy type brand or creating a movement at the scale that you’ve done. And I feel that, you know, you’re only scratching the surface in many ways.
Casey: Yeah. Well, I just have to say, one of my greatest lessons is where it comes to hiring developers, right, that’s a tough and tricky thing to do. And developer’s tech folk says, “Just hire the best folks you can. Pay them as much money as you can afford.” You know, they think less is more in that department. Fewer Jedis is better than more people who are, you know, still learning.
Casey: I had to learn that the hard way, you know? I came from a place where I wanted to be more inclusive, right? I wanna include everybody. So that was a powerful lesson that I had to learn the hard way. Other lessons are, you know, really…it’s tricky, like, you know, like, incorporating CouchSurfing as a non-profit and then having to go through all of that stuff just because I had, you know…it seemed like a good idea. It seemed like a nice idea.
But low and behold, it was the biggest time suck known to my entire life and a lot of people’s lives, and it would have been a lot easier if I had done more research up front and was aware of the implications of trying to start a, you know, basically, what is an internet company as a non-profit. But now, yeah. There’s many, many more ways to do that, but I had to learn that the hard way. That was a huge lesson, right? And it…
Nathan: Did you have any goals?
Casey: That’s what I was gonna say is we didn’t have an advisory board. We just had thousands of thousands of people sharing with us what we should do, but nobody said anything about that. Everybody said everything about other things. So what would have been great is I should have approached people…I didn’t know anybody at that time…that were deep into the non-profit world and said, “Hey, this is a long-term path I’m seeing. What do you think?” And maybe I would have gotten some people saying, “Oh, oh, you might have some problem with that.” That would have been a good idea.
I think you just run up the advisory board. I wish that we had done more of an advisory board from the beginning. When I started Wonder, that was the first thing I did. I had to get 20 people in all walks of life, top of their game in all areas of the things that we’re working on, and we’re doing that now with Mast.ly, so I’d ask if anybody knows of…if you are or if anybody knows of folks who are experts in equity and benefit law, we wanna talk to you. We are looking for advisors, and we are looking for people to help us build it. So please, get in touch.
Nathan: Awesome. Well, look. You know, we’ll work towards wrapping up, Casey, but where’s the best place people can find you? And yeah, you know, where’s the best place people can find you?
Casey: I think the easiest is go to caseyfenton.com. If you go there, all of my projects are listed, and you can click into them, and you can email me. You can get in touch.
Nathan: Awesome. All right. Well, look. Thank you so much for your time, man. This has been an awesome interview.
Casey: Yeah. Thank you so much, Nathan. I’m just double high-fiving you right now. What you’re doing and the awareness you’re bringing to the world is incredible. You are doing so many people a huge favor not only in the inspiration level but just on the straight up logistics of what do you have to do as a founder starting a company? Both of those, the inspiration connecting at their heart and spirit and connecting with the logical rubber meets the road. What am I going to do today? And you’re packaging it in a really beautiful gift or present and handing it to people, so I’m just double high-fiving you. Thank you so much.
Nathan: Oh, well, thank you. I really appreciate the kind words, dude.
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