How did she do it? A Q&A with Judith Erwin, CEO of Grasshopper Bank
By Barbara Yastine, Managing Director of Golden SeedsOctober 17, 2019
Banking | Digital Banking | Female Founders | How Did She Do It | Women Entrepreneurs
Judith Erwin has experienced several firsts as the female CEO of Grasshopper Bank, a startup commercial bank for entrepreneurs and the VC firms that fund them. Grasshopper was the first bank chartered by the Office of the Comptroller of the Currency in the Northeast in over ten years, the ninth bank to receive a charter since the 2008 financial crisis, and the first commercial bank that plans to fully utilize digital banking in the commercial banking space. Barbara Yastine, Golden Seeds investor and former Chair & CEO of Ally Bank, sat down with this trailblazer to find out more about her path and what entrepreneurs can look forward to from this exciting women-led financial institution.
BY: Tell us about the origins of your company.
JE: When Square 1 Bank, a business I helped start, was sold in 2015, I thought I was done with the venture banking industry. I have three decades of experience in an industry run by middle-aged white men with only white men on the boards. The industry also had a broken customer experience and lacked innovation. Then I was approached by a group interested in starting a bank for venture capitalists in New York City and an opportunity began to reveal itself. We focused on the startup market and utilizing digital banking in the commercial banking space to meet the needs of entrepreneurs, venture capitalists, incubators and others in the innovation economy.
The name Grasshopper comes from Adm. Grace Hopper, a Naval computer programmer in the 60s and 70s who was part of the team that developed the very first computer language on which banking was built. In addition, grasshoppers can’t jump backward or sideways, only forward. We saw that as a metaphor for our company moving forward an industry that has been stagnant for years.
BY: What market need are you solving, and how is your approach different from how others have addressed this need?
JE: The majority of banks use the same decades-old, outsourced technology. We have put the human experience back into banking. Since we target entrepreneurs, we knew our offering needed to be as efficient as possible. We created a streamlined, frictionless, time-saving banking model focused on the client experience. We condensed processes that usually take weeks into minutes. Our client is a small business owner in their pajamas with 20 minutes to do their banking at 9:30 p.m., so our goal is to provide them with a secure, intuitive, user-friendly interface and data so they can run the financial side of their business more efficiently.
Additionally, our business model allows us to underwrite a loan for less money than the big banks, so we are able to provide loans to companies that may not have a chance at being granted them otherwise.
BY: Grasshopper describes itself as serving the Innovation Economy. How do you define Innovation Economy, and what types and stages of companies are you targeting to do business with?
JE: We focus on companies that are interested in disrupting or innovating industries, regardless of size or vertical. We service a broad range of businesses in the innovation system, from the entrepreneur just starting out in a studio apartment to a company closing a $40M Series D round of funding. In addition to venture-backed companies, we also want to help the seeded angel companies that never make it to a Series A.
BY: What challenges have you encountered along the way? How have you overcome them?
JE: First, many investors refused to invest in a startup bank and weren’t used to seeing a venture bank. Plus, we were going to spend a lot more money on our tech capabilities than a regular bank. It was a challenge fundraising in an anti-banking environment but we were able to get it done and successfully raised $116 million on top of the $15 million we raised in our seed round.
As a startup, it’s a challenge to find great team members consistently. I’ve learned that there are people with a skill set for specific parts of your journey. I’ve had to learn how to know when to let them go and find new people based on the company’s next stage.
Finally, the licensing and approval process was also a long, expensive journey for us. I was the first bank to apply for a charter in 12 years at the Office of the Comptroller of the Currency in the Northeast so no one there knew how to do it, and they had never approved a digital venture bank before. We applied for the license in October 2017 and were finally approved in April 2019.
BY: What advantages does Grasshopper offer early stage companies?
JE: Unlike most big banks out there, our big advantage is that our cost base is much lower and we share that cost savings with our clients, enabling them to have a lower cost of services in a more intuitive user interface.
We can also introduce them to potential investors like Golden Seeds because we have strong relationships with the investor world. We can help them choose a commercial real estate broker or an insurance broker. There are many ways that we can deploy our whole ecosystem for them.
BY: What products (both on the deposit/cash management side and the loan side) are you offering now and plan to offer? Should potential clients think of Grasshopper as a full-service bank?
JE: Even though we’re currently in beta for a select group of entrepreneurs and venture investors, we offer checking accounts, a prepaid expense card, a revolving line of credit and a term loan. Over the next few months, we will be launching products such as remote deposit capture, bill pay, ACH wire transfers, money market savings, CDs, credit cards and more. We’ll be out of beta and fully open for business by Q1 2020.
BY: You’ve spoken about how Grasshopper tests new features with groups of customers every two to four weeks and get their feedback — “minimum loveable product.” Can you talk more about this? Can you share one of the most recent features you tested that was a success?
JE: We thoroughly vet new features with our clients so we can immediately change them based on feedback. We can dynamically change features on the fly — it’s very cool.
One example of this is when we introduced online account opening, which is very unusual for a business bank. In a seven-minute chat on your phone or computer, you can do everything necessary to apply for a business account. By the time you hit submit, everything like money laundering and background checks have already been done. Typically, you have to physically go into a branch and sometimes the bank asks you to bring your whole management team. It can take two weeks to get the account set up while they’re filing paperwork, conducting background checks, etc. CEOs shared with us that they needed a more efficient solution so we were able to provide it for them.
BY: What’s coming up next for your company? Any big milestones on the horizon?
JE: We’re launching the last of the products by first quarter and by that time, we’re hoping to scale and be more visible. Once that base functionality is in place, we’re hoping to have our clients sign off on our capabilities and features and agree to testimonials. We’re also hoping to add partnership opportunities with other fintechs catering to the startup community to the mix, so that could quickly turn into 1,000 customers.
BY: Grasshopper is a fully digital bank with no plans to open branches, other than some offices for loan officers. What advantages or disadvantages does this digital model bring to potential clients?
JE: My previous experience working with old banking technology made me adamant that a new venture bank had to have modern technology. I also learned that entrepreneurs would value the speed, efficiency, simplicity and transparency of banking digitally. Unlike traditional banks, Grasshopper will act as a partner with entrepreneurial companies, delivering digitally driven, streamlined services that give management teams more efficient command of day-to-day financial operations. The only downside to making our processes so automated is that entrepreneurs still crave that human element in the middle of a digital experience. People still want to know who to call if they have questions or if something goes wrong. We think a lot about how to provide this user experience connection in a digital world.
BY: What advice do you have for early stage founders about raising money, growing a team, fostering company culture or other issues you’ve had to address?
JE: First, don’t get into bed with people too early. There’s this huge need for speed when it comes to startups, but the biggest mistakes you can make are around people — who you hire and who you fire. Be strategic and careful with who you bring onto your team. Bring on a strong leader in human resources before you think you should have to.
Be sure to ask for help. As a founder, I have learned humility. Developing my own network of other CEOs and professional women in other industries that I can turn to when I have a question or need help is really important.
Lastly, don’t be afraid to make the hard decisions. Being a CEO can be a lonely job and sometimes you have to make unpopular decisions because they are right for the company.
BY: Do you have any lessons learned that you can share with other startup CEOs?
JE: I’m a huge believer in the concept of “CEO as a servant.” My only job here is to remove barriers to the success of my team members — that is really it. If that means going out and raising more capital or fostering relationships with potential vendors or hiring more people then that’s what I do. I am successful if I can make other people successful.
Additionally, don’t let perfect get in the way of good. This has been something I say to myself five times a day right now!
BY: What role has mentorship (both as a mentee and mentor) played in your career?
JE: My first three bosses were all women in banking, which was really rare. I think that had a huge impact on my career. I’ve had a lot of people mentor me along the way and I’ve been trying to spend more time mentoring. I would also ask every professional white man to step up and mentor women in the field too. According to the International Monetary Fund, women occupy less than 2% of bank CEO positions and less than 20 % of board seats worldwide. We need white men’s help to change this number.
BY: Tell us about your experience with Golden Seeds. How has the Golden Seeds network been helpful to you?
JE: Angel investment networks weren’t on the radar screen when we set out to raise our launch capital — $100 million plus is a big challenge. But along the way, I was introduced to you, Barbara, by a mutual colleague and then you introduced me to Golden Seeds. I was thrilled to think of being backed by an organization whose essence is investing in women entrepreneurs. I am humbled by the breadth and size of investment Golden Seeds eventually made in Grasshopper. But I am very excited about what lies ahead for the Grasshopper-Golden Seeds relationship. I want to bring them great deal flow and help their entrepreneurs become the best they can be. I am hugely proud of the fact that so many people from Golden Seeds have invested in us. It’s amazing.