Podcast: One on One with Stem CEO Milana Lewis

In this episode of Fintech Thought Leaders, QED's Head of Early Stage Investments Bill Cilluffo speaks with Stem CEO Milana Lewis.

Show Notes

Tune in to learn:

[2:17] The problem that Stem is solving, from music distribution to automating payouts, and how the company unlocks economic opportunities for content creators, including mortgages, benefits and healthcare.

[4:38] The exponential growth of new music, from 70,000 songs a week, to more than 100,000 a day.

[6:20] How Milana was shaped by her immigrant experience and the role her family played in her love of music.

[10:07] Milana’s first business plan – that she had to pitch to her parents to show she could afford to attend college.

[12:18] The parallels between fintech and the music industry how recessions can be such a catalyst for innovation

[16:20] The motivation behind starting Stem and how she was inspired by Malcolm Gladwell’s book about 10,000 hours

[26:20] How the business today is different from the original vision in 2015, why Stem never planned to become a distributor and how the technical integration with the industry’s biggest names took years instead of weeks.

[31:12] The balance between being a disruptor while remaining part of the establishment

[33:00] Trying to force consensus on contracts before music came out in order to try and get people to agree on what they own before the song gets published.

[35:05] Milana’s leadership style and how that changed from the agency environment to the startup environment.

[37:53] The way Stem approaches constructive feedback as a team, and why her one big commitment is to have fewer sacred cows and to be more clear about what they are.

[40:17] The learning from the first team off-site and the impact it had on company culture. Find out how Milana thinks about creating connection, driving more context and accelerating its ability to align.

[44:25] Why the things that people do for fun still feels like work for Milana, and why she has embraced golf as a way to clear her mind and unplug from work.

[47:07] Milana’s one piece of advice for new entrepreneurs. Spoiler: it’s that nobody else knows what they’re doing wither.

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Bios

Bill Cilluffo joined QED as a Special Advisor in the fall of 2014 and became a Partner in 2015. He is currently Head of Early Stage Investments after six years as Head of International, leading QED’s Investment teams in Latin America, Europe and Asia.

Prior to joining QED, Bill spent nearly 20 years at Capital One, spanning several roles and leading several businesses. He spent the first 6 years of his career leading Marketing, product development and credit policy for Capital One’s subprime credit card business; ultimately having overall P&L responsibility, and growing the business to become the most significant player in the market. He moved on to spend 2 years in various new business development roles, spanning the telecom, medical finance and small business finance industries. Bill spent 3 years as Deputy Chief Credit Officer for the bank, playing nearly every role there was to play in the central credit function, after helping build the department from scratch in 2002.

Bill then pivoted his career to general management, leading Capital One’s Canadian, and ultimately International businesses, over the course of 6 years. Profitability of the business grew significantly under Bill’s leadership, through new product and channel introductions, acquisitions, and significant cost take out. During Bill’s last 3 years at Capital One, he led its Co-Brand and Private Label credit card business, building the business nearly from scratch to one of the top few players in the US market, through a series of acquisitions, most notably including leading the acquisition and post-merger integration of HSBC’s US credit card business, which closed in May 2012.

Bill graduated with a BA in economics from the University of Michigan, and competed the SEP program at Stanford GSB.

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Milana Rabkin Lewis envisioned a new paradigm of independent business for the music industry, and she ultimately made it a reality as Co-Founder and CEO of Stem. The entrepreneur and executive has architected a transparent and trendsetting artist-first financial ecosystem.

Born in Lithuania and raised in Michigan, she transferred from Michigan State to UCLA, immersing herself in digital media. Between attending classes, she held positions at various talent agencies and developed a passion for emergent storytelling technologies such as emergent social media platforms. Following her 2010 graduation, she spent five years as a Digital Media Agent at UTA.

During this time, she spearheaded projects and deals for the likes of Issa Rae [Insecure] and Rob Thomas [Veronica Mars], to name a few. Recognizing a void for independent artists to release music and receive prompt payments, she devised the initial concept of Stem in 2014. She personally secured the support of prominent early-stage VCs QED, Upfront Ventures and Slow Ventures in addition to industry leaders Quality Control, Red Light Music and Management, Big Loud, WndrCo, and more. In 2015, Stem officially launched and it continues its mission to foster long-term sustainable success for the music industry at large.

Along the way, she has been recognized as part of Inc.’s 2021 “Female Founders,” Variety’s 2020 “Up Next,” Billboard’s 2020 “Indie Power Players,” and Billboard’s 2018 “Digital Power Players,” with Stem listed on Fast Company’s 2021 “Most Innovative Companies” and builtin’s 2020-2021 “Best Places To Work,” among others.

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About Stem

Stem exists to help artists navigate the business behind their music. We reduce complexity, create clarity and provide more opportunities for artists to exercise control over their finances.

Launched in 2015 by Co-Founder and CEO Milana Rabkin Lewis, our platform gives artists and labels clear visibility into their royalty income, and our insights enable them to decide for themselves how their hard-earned dollars flow. Stem solves the burden of royalty calculation for record labels with an intuitive platform for royalty calculation, and we make it easier for artists to forecast, collect, and manage what they’re owed. Stem Disintermedia is led by a driven & collaborative team from diverse backgrounds, including senior professionals from Spotify, UTA, Hired and Apple Music. Our employees include musicians, parents, activists, artists and more.

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Full Transcript

Bill Cilluffo:

Hello and welcome to the FinTech Thought Leaders podcast. I'm Bill Cilluffo, the Head of Early Stage Investments at QED investors. Today on the podcast, I'm thrilled to be joined by Milana Lewis, CEO and founder of Stem. Milana, welcome to the podcast.

Milana Lewis:

Thanks, Bill, for having me.

Bill Cilluffo:

Absolutely. To start with, this is just fantastic to have a fellow Michigander on the podcast. I think, if I'm not mistaken, we grew up about five miles apart from each other in suburban Detroit.

Milana Lewis:

We did. That was a fun discovery.

Bill Cilluffo:

Definitely. I don't know about you, but I don't come across that many Michiganders in this industry, so it's pretty cool having you on board today.

Milana Lewis:

Thank you. I had a pretty interesting nostalgic moment yesterday. There's a new pizza place in LA that opened up called Dtown Pizza, and they serve Detroit-style crust, like Jet's Pizza style pizza and Faygo pop and I went, "Hey," my whole fridge just filled with Faygo because you can't find it anywhere outside of Detroit.

Bill Cilluffo:

Totally. What's your favorite Faygo flavor?

Milana Lewis:

Rock and rye.

Bill Cilluffo:

Rock and rye. That's a good one. We went to Ann Arbor. I know you're probably not a big fan of Ann Arbor, but we went to Ann Arbor with the kids a couple years ago and they had all the Faygos and we had the kids try all the different flavors. Rock and rye is my favorite too. They found it totally disgusting since they had never had it before, but that was definitely my favorite. I remember going to family events when I was a kid and they would serve red pop and orange pop, which I couldn't even tell you what exactly those flavors are, but ...

Milana Lewis:

Or what's in them.

Bill Cilluffo:

I probably don't even want to know what's in them, to be honest. Hey, as we get kicked off, I'd love to maybe start by just giving the listeners a bit of a background on Stem. We'll dive much deeper into the company later, but just for context, if you could share a little bit about what Stem is and what you guys do.

Milana Lewis:

Sure. Stem is a platform that does distribution and payments specifically related to music in the music industry. Our clients are oftentimes record labels or what we call rights owners, so in many circumstances the artist is actually the rights owner directly so we'll work with them in their management team and the services we provide for them cover a couple of different areas. We started with music distribution, which is ... think of it as digital supply chain management, so clients use this to get their music into Apple, Spotify, TikTok ...  or your Peloton bike. Anywhere that you're streaming music from, we're handling the delivery of that. Then in return, those platforms pay us. What we've innovated on that quite frankly didn't exist prior to Stem was automating the payouts based on the sort of cap table of a song. So music, every song has both a cap table and a P&L, which makes the accounting of it really complicated and I think that's one of the core issues of why you probably hear a lot of artists complaining they don't see any money, songwriters complaining they're not getting paid from streaming.

It's not that their money isn't flowing, it's that it takes so long to figure out who gets paid what and there's a lot of inefficiencies and opacity in the process that we're trying to clear up. Our mission in doing so is really to help people who work in the music business to understand what they're worth. The reason why that's not so easy to do is because your worth is not based on something you get paid a salary for. It's based on your economic participation in a song or in a tour or in an artist, and so there's this whole ecosystem of about 14 million people employed by the music industry in the US alone who, because they don't know what they're worth, have a really hard time accessing economic opportunities. Everything from mortgages, insurance, benefits, healthcare.

So for us, we believe that if we can clean that up and we can streamline that process, we can unlock all of these not just only traditional and standard economic opportunities that the working and the creative class should have access to, but create more unique ones as well for them.

Bill Cilluffo:

14 million is a stunning number. We'll talk about the US but I'm sure the trends are similar around the world. Has that just exploded over the last 10 years due to the proliferation of TikTok, Instagram, YouTube, all sorts of platforms?

Milana Lewis:

Yeah. That number's interesting. The one that's even crazier is the number of songs that come out of year. When we started Stem back in 2015, there are maybe 60,000 or 70,000 songs released a year, new songs. Today, there's over a 100,000 a day.

Bill Cilluffo:

Wow.

Milana Lewis:

If you think of each song as a project that needs to be accounted on and each song having it cap table, you can already see why it's gotten so messy.

Bill Cilluffo:

I imagine prior to Stem, the best companies probably used spreadsheets. I imagine a bunch of them used backs of napkins and sort of paper-based files. I can only imagine a number of mistakes that must get made regularly.

Milana Lewis:

Well, also it wasn't as big of a problem because those 70,000 songs were concentrated across the three or four big music label companies, music label groups, which had centralized systems of accounting, centralized teams that did most of it. I think about 80% of the overall industry was consolidated across those parties and they had the infrastructure and ability to invest in those tools. Today over 40% of the industry is completely independent and they have no tools other than platforms like us that are trying to integrate all the flows in a combination of other Frankenstein tools they can use between services that exist for other businesses like QuickBooks or bill.com, and then some unique accounting tools that have been created for royalty accounting. It's a jumbled mess and we want to streamline that.

Bill Cilluffo:

That's awesome. That's awesome. I'd love to jump into kind of a bit of the creation story around Stem. I mean, I know you've come at this from some interesting angles and I know in particular you wrote a phenomenal blog post back when you decided to start the company talking about both your personal and professional, journey of how you got there. I wonder if you can just start by giving the listeners a bit of a summary of how is it you got started down the road of doing this?

Milana Lewis:

I think my background's pretty important to this because I was very much shaped by my immigrant experience. I was born Lithuania. We came over to the States in 1991, which was around the time that Lithuania was trying to sever its independence from the Soviet regime, so not too dissimilar from what we're seeing with Ukraine right now. In Lithuania, my dad was a musician pretty much his whole life and ended up having to start a career in engineering because that was more stable and his story is not dissimilar to my grandfather on both sides and my brother and so many other people in my family have always been musically inclined and talented. I personally have not been. No one spent time to teach me. I have no-

Bill Cilluffo:

Oh, you had to play the recorder in third grade or something.

Milana Lewis:

Barely. It's interesting because my mom was very adamant about me being good at math, so I had to swap out band practice or orchestra, which I think usually elementary or middle school you have to do one of the two, for an accelerated math course. So truly never got a music foundation and school was never musically inclined, but I am wildly creative and I started gravitating more towards film and storytelling in high school because I was able to participate in an incredible program that was available in Michigan through our school where we had the ability to audition to work for the local news channel that was operated out of our high school for the second half of every single day from sophomore to senior year. I spent about three or four hours producing content for most of high school, which was incredible. Yet, as I was graduating, because again I come from very traditional Russian parents, my parents were like, "What do you want to do? Be a doctor or lawyer? Pick one."

I was like, "I want to go to film school, I want to be a producer, I want to work in the industry." My parents were like, "That's a good hobby but not a viable career." The reason for saying that is because it's very much what their experience was, having to make sacrifices to provide for the family, not being able to rely on music as a sustainable course of business. It was always a hobby and one that they took seriously, but one that they had to make sacrifices for. It crushed me because on a personal level, music was so important in our household. From my earliest memories and probably even before then, I would go to sleep because my dad was playing the piano next to me and playing a song to put me to sleep.

I would wake up to music, my parents wouldn't come in screaming and be like, "Get out of bed." My dad would come in and just start playing music for me to wake me up. I would know that he was home because he would come in, put his suitcase down, wash his hands, take off his jacket and sit at the piano and just play for hours as his way to unwind. For me, it was always a big part of our coming together and it was how the family after dinner would come and sing at the piano and everyone would play instruments. It was always so key to every element of our lives that it crushed me because I was like this is what makes my parents happy, and yet they have to do these other things in order to provide and be able to enjoy this as part of their lives.

Something like that didn't sit well with me and so long story short, tried doing it here in Michigan State to study law and ended up conning, kind of, my parents into letting me come out to LA just for the summer they thought, because UCLA had this great summer film program where in their mind I could take those as extracurricular courses and maybe do some other classes that were part of my GA requirements, and little did they know I had applied to transfer and got accepted and had no plans of ever coming home.

Bill Cilluffo:

How did that go over when you shared that bit of news?

Milana Lewis:

It was hard. I think the biggest thing my parents were afraid of was really about my survival. I didn't come from a family where my parents could afford to pay for me to live in LA so the first question they had was like, "How are you going to do it? How are you going to afford this lifestyle?" I had to create a business plan and write my first financial model for my dad to be like, "This is how much money I can make through working in retail. This is how much I can get my internship to pay me hourly to do the work. Here's what my tuition is, here's what my rent is, here's what I think I need for food and here's how I'm going to close the gap," and I had to pitch them. That was my first pitch.

Bill Cilluffo:

Out of so much angst, you had to learn an amazing amount through going that process, I imagine, and I would guess that some of those things probably still help you today.

Milana Lewis:

Definitely. Just being able to defend my ideas, that was a big thing for me. But being in working in film, it was a really interesting time because I came to LA in 2006 and I stood a year at UCLA and I had to drop out because the economy crashed and I actually couldn't get approved for any loans and I was paying out-of-state tuition. This we can come back to because it ties into the story of how we approach the ability to advance money to artists and my inspiration from companies like SoFi that I got to work with. Or not work with, but be a client of, who I know QED has a long history with. But couldn't afford to go back to school and had to start working and had a really good mentor who I was assisting at the time that was a manager on the film side and his recommendation is, "Go work at a talent agency, get that under your belts. It's kind of like your residency if you were going to go to medical school, you have to do it."

I did that from 2007 to 2009 and it was the weirdest time because we were about to enter a recession, two agencies were merging, there was a halt because of a writer's strike, so no new content was being produced, and so the traditional means of creating, developing and producing content were not available. What I saw was this emergence of the creative online class, these new digital creators who were emerging on YouTube and Vimeo who were able to produce content out of their home with homemade equipment and using their computers, but were able to produce quality content that looked like it was studio-grade production because they were creative and they had these new tools and I just became obsessed with that. So I naturally started gravitating on the digital side.

Bill Cilluffo:

It's fascinating, the parallels. I mean, I don't pretend to be a music expert. We obviously specialize in FinTech and fintech's a big part of your business as well, but it's kind of amazing how recessions can be such a catalyst for innovation in so many different ways. I think the FinTech boom we're living in right now kind of came out of the ashes of the 2008 financial crisis. You talk about a recession in the music industry, which happened to be timed with the creation of a number of digital tools really leading to an explosion of creativity. While it's never fun to go through the process, there can always be some great outcomes that come through chaos sometimes.

Milana Lewis:

Totally, and the way I sort of saw it, and I still believe, and I imagine you feel the same way, it's like when one door closes, there's more opportunity for new ones to open and they may be better than the other ones that existed before.

Bill Cilluffo:

Definitely, definitely. So you use this moment, you're kind of going down the talent side of things as a way to get your foot in the door and learn. You decided to move your career toward this creative class and this new emerging thing. Can you talk to me about both how that went, and I know eventually that was a big catalyst that allowed you to see insights that led to Stem.

Milana Lewis:

For sure. I was at the newly merged company between William Morrison Endeavor. I was working on what they call an MP Lit desk. MP Lit is motion picture literary, that's the department that represents screenwriters and directors, and the agent I was working for had really unique tastes where a lot of the voices that he was representing were people who were very non-traditional, left of center, not your typical commercial creators who you would see making movies that were blockbuster worthy, they're more indie. I learned the independent film model through working with them because they weren't necessarily the types of talent that Warner Bros. at the time or Sony or Universal would've partnered with, and today those are people who, I'm sure you guys would laugh because I'm sure you watched the content, but it's guys like Alan Yang who created Masters of None or Sam Esmail who created the show, Mr. Robot.

Now they've had the commercial successes in they're great talent, but back then they were just really unique indie voices. What I started seeing was the focus on original content that was emerging from these new tech companies, Netflix, Hulu, Amazon, and just became obsessed with understanding what their agenda was, how they were going to be acquiring content, how data was going to enable them to identify gaps in the market that they could fill in a way that traditional networks and studios couldn't. So I pitched the concept at the time to the agency of like, "Hey, let me be the digital coordinator, someone who's just focused on this segment of the market, who's focused on the creators and can surface talent or opportunities in the digital space." They kind of laughed and they were like, "We're in a recession, it's the only reason why any of this stuff is happening. Once the recession's over, it's going to go back to normal."

I was like, "All right, this is not the place for me." So I actually left the agency, went back to UCLA because in my head I was like, "I must have missed something that you learn in your senior year of college that suddenly all of this makes sense. Why aren't these people seeing the opportunity?" I did that, but I continued working because I had just built such an incredible network of relationships that I started moving more into the management side and I started building up a roster of digital clients and YouTube stars and creators who at the time no one in traditional Hollywood wanted to represent and just started finding ways to fund web series and video content and brand deals because a lot of the funding and production came from advertisers at the time.

As I was graduating I got approached by an opportunity from a competing talent agency, United Talent Agency, UTA, who actually saw the opportunity in digital and were looking to make their first digital agent hire that was dedicated to that, and that's when I got brought on.

Bill Cilluffo:

That's awesome. Quick question about your motivation for going down this path. I mean, there's always a bunch of different reasons that go into this, but how much of this was really seeing the opportunity and where it could go versus, "Look, I'm trying to get my foot in the door, nobody's doing it. Let me jump in. It'd be kind of cool." I know Nigel tells the story of QED, when we write the book someday it's going to sound very linear and we were strategic and we had this vision and we did it and he is like, "We just kind of winged it and we learned as we went," and whatever. I mean, talk to me about how you decided to go down this path.

Milana Lewis:

It was actually a combination of both, I think. I vividly remembered this turning point where I had the aha moment. I was living in this apartment building with my cousin. We shared an apartment at the time and there was this pool in the courtyards. We were sitting by the pool reading our books. I was reading Malcolm Gladwell's book, I can't remember which one. It wasn't Tipping Point, I think it was the one after that where he talks about the concept of being an expert after spending 10,000 hours doing something. I was doing the math in my head. I'm like, "Okay, if I want to be the expert in film, that means I have to spend 10,000 hours reading screenplays. Currently I can read 10 screenplays a week", which is about 20 hours a week of my time, and I did the math and I was like, "Fuck. It's going to take me another five to six years to become an expert in the film world or to be proficient enough and master it."

My cousin's like, "Yeah, too bad you can't just do that by watching YouTube videos because you would've gotten there by now." I was like, "Oh, shit. You're right. I spend so much time ..." and I probably spend more than the average person, have a leg up and if I continue focusing on this space, I can actually build an expertise faster than anyone else. That was sort of one of those things where I was like, "Hmm, it's something that I naturally gravitate towards so it's a perfect fit for my interests and there's clearly a gap that I see in the market that I have a leg up on focusing on before other people probably realize it's worth it."

Bill Cilluffo:

I think it's a great example of so few people really have a grand plan necessarily going in. I mean, I know you were attracted to music and there were some elements of that early, but just seeing an opportunity, how can you learn, how can do something that no one else can do, and just fun to see how that leads to such cool opportunities down the line.

Milana Lewis:

Truthfully, you're hearing my story, none of this has anything to do with music up until this point. This is now me in my early 20s or had just turning 20, I got hired on as an agent at 21, which was also crazy, crazy young. I think it was the youngest agent in history, at that agency at least. It was just because I sort of followed where I thought I had a unique edge, but the opportunity for music didn't become apparent to me until four years into being an agent.

Bill Cilluffo:

That's wild. How did you then pivot from really thinking about creators, more of a film orientation to both music, but then also into seeing the opportunity that became Stem?

Milana Lewis:

I got hired on as an agent. No one knew what the job was. People internally thought I was an extension of IT, so when they got their iPads, they would call me and be like, "What apps do I download?" I got brought into meetings with clients who were afraid of being on social media, but we needed them to get on social media because it was part of their marketing commitments. Even back then, I remember Warner Bros. was not sure if they could get Zac Efron to be on Twitter to promote The Lucky Ones, which was the Nicholas Sparks movie he was the star of, and I had to fly the Warner Bros. executive team, Nicholas Sparks, his producing team, Zac Efron's management team and the other co-star Taylor 's management team to San Francisco, to the Twitter offices. We did a tour of Twitter, Facebook, Instagram, YouTube, just to get them comfortable to be like, "There's humans here that you can interact with that can help guide you guys in entering the digital space."

I don't think Warner Bros. was even advertising on social media back then. That's how early this was. It was just helping connect the dots and bridge the gaps between the social platforms, the online media companies and the traditional guard. Through doing that, I sort of built this network of pretty much anyone that worked at those companies. So got to see the changing strategies of the online space in parallel with the traditional media space, so I saw how new different tools were becoming available for creators to make content for cheaper and cheaper as the cell phone to all this software that happened online. I saw that there was newer ways for them to distribute that content. It's not just YouTube and Vimeo, but also there were platforms early on like Gum Road and VFX where if Dane Cook had a comedy special and he wanted to sell it direct to his fans, he could use one of those different platforms and it was my job to help him vet them.

I saw that the third pain point in creating content, which is how to get money to market it or promote it or be able to even produce it if it's more expensive than what you have money to afford to do through the tools, how do you do that online? That's why in the emergence of Indiegogo and Kickstarter and then later Patreon came about. So I started seeing all of these pain points that creator space at different stages of the creation and production process start to get solved over time, and yet there was one piece that wasn't being solved and that one I kept running into with every single one of my clients and that was the pain point of after we know we can create the content for cheap, fund the marketing, get it distributed and it's going to make money, we're confident about that, how do we pay everyone?

That was really scary for these people because when you're working on independent projects, the economics are very different than a major studio or label, which is that when you're working with a major studio, they can pay all the talent fees and all the service fees upfront and maybe they'll give some kind of a backend, but it's not that significant. It definitely wasn't that significant in 2010, especially for digital projects. We did a couple that were wildly successful and the headache of figuring out how people get paid became really poor, became so bad that it would prevent people from wanting to do it. I remember on the film side, we were in a meeting with Brian Cranston who had just finished Breaking Bad and had this independent film that he wanted to direct, which we all thought was going to be amazing.

We knew because of his name and fandom that he would so easily raise a couple million dollars through Kickstarter to fund this project. As we were sort of planning out the rest of it, he was like, "Wait, but I have so many different cast members and international ..." and when you're dealing with international licensing deals, there's revenue coming in from all these territories. Who's going to account for it and how do we do that? In my head I was like, "Damn, why isn't there a tool for that?" This is around the same time that I started seeing companies like Stripe and Square emerge. There were streamlining payments, there were so many tools that had already existed throughout even the Intuit suite of QuickBooks and Mint that were helping on the personal finance side, and that problem was a problem that for film may have been easier to solve because you make one movie every four years.

I started encountering that problem even more so with my digital creators who were gravitating towards music. One of our early clients on that end was a guy named Troye Sivan who blew up on YouTube, had a massive subscribership there, I can't remember the exact number, but it was in the millions of fans that were tuning into him every day, and he self recorded a song and self-released it and it went number one on iTunes. He attracted the attention of all of the top tier managers that were working with other superstars at the time. Ended up deciding to sign with this guy Brandon Creed, who was the manager of Bruno Mars and a bunch of other people too, and so they signed together. Brandon, because of his access to songwriters and producers, was able to get Troye into the recording studio with a bunch of different songwriters and producers that were at the tier of these bigger guys that he worked with.

So they come back a couple months later, this woman, Dani, who worked for him at the time, comes to the office and plays some of the new songs that we're listening to and I'm like, "Oh my God, these are amazing. Let's get them out tomorrow," and they're like, "we can't do that." I was like, "What do you mean you can't do that? Yes you can. We just did it for the first song and it was number one. He just put it out there," and they're like, "No, no, no. This song has bigger songwriters and producers that are not going to clear the rights unless a label's involved." I was like, "Wait, hold on. So you're telling me that you have to sign a label deal for this kid not because you need to develop him or create new music with him, because that's all done, simply because you don't think that the songwriters and producers and the publishers are going to clear the rights to release it commercially because they can't trust they're going to get paid in any other way," and they're like, "Kind of."

Bill Cilluffo:

It's incredible that the financial services friction can reduce innovation in the industry. That's kind of a stunning story.

Milana Lewis:

So much. This is just the simplest form, but that's what we kept running up against is this issue of, "Hey, we can't do this because we can't solve for this financial friction." To me I was like, "But that's what computers are made for. They're made to compute the math and solve this where humans can't do it in a scalable way or in a reliable way," and that's where it clicked in my head and I was like, "Holy shit, what if you could build Venmo for content? What if there was an easy way to say these are the people who participate in the upside of this, as the revenue comes in, split the revenue based on these rules of the contract and pay everyone out simultaneously?" That was the idea of Stem in the beginning.

Bill Cilluffo:

Oh, that's awesome. So here we are. I think I've got the numbers right, seven or so years later, making amazing progress. I mean, the traction's awesome. You just raised a 20 million round this spring. You were named one of Inc. Magazine's top 100 female entrepreneurs. I'm sure there's still tons of things that you have in front of you. How is it different now than what you thought it would be when you first came up with the idea? I mean, I guess I'm sure the vision sounds very similar to what you came up with in the time you described. I'm sure there's plenty of things that now look quite different than your original idea. I mean, not talking us through the whole seven years, but what is one or two things that might stand out in that regard?

Milana Lewis:

We had no idea what a money transmitting business was when we started this and that was an initial barrier entry for us because it was cost prohibitive as a startup. This is back in 2015 when we started the company really, and all of these ... now there's so much innovation that exists in the banking as a service and FBO platforms that you can partner with, but those didn't really exist back then. We never planned to become a music distribution company. We planned to just do the payouts, partner with other distributors, partner with other labels, and upon building our MVP, which funny enough was also on the blockchain, so opening up a bank account anywhere was really challenging, but we got SVB to engage with us because we had some great investors who had relationships even in the seed stage that were able to push us through.

We got on the phone with one of the heads of compliance at SVB, I think just us mentioning we're in the blockchain just triggered that conversation immediately, and they're like, "Oh, what's your plan for getting money transmitting licenses? Are you going to pursue them on your own or do you want to pay us a retainer to leverage our FBO license?" We're like, "Wait, what does this mean?" So our lawyers were like, "Yeah, you guys are accepting money on behalf of someone else. You have to follow the compliance and you can either pay ..." I think at the time it was like 20 grand a month, " ... in a retainer to SVB to become a money transmitting business under their umbrella or you can go and pursue those licenses yourself."

I was like, "How much of those costs?" and they're like, "Well, you need one in every state that you're going to be operating in," and they're like, "Where do your clients live?" I'm like, "It doesn't matter how my clients live, because we get the music streamed everywhere and the money comes in from everywhere, globally. So we can't just get away with US. We need to do it globally right away if we're going to do this right." They're like, "Yeah, that'll be somewhere between $3 million to $5 million legal fees for the US alone." We had just raised a million and a half in a seed note, so I was like, "We can't do that."

But our lawyer was also very clever at the time. His name was Hank Berry, he was the former CEO of Napster, so he had both experiencing music and in FinTech-

Bill Cilluffo:

And lots of experience in compliance.

Milana Lewis:

... dealing with regulatory bodies, let's put it that way. He was like, "Well, there's another path that you could take. You could just become a music distribution company because then you're actually the licencor of the content. You're not holding the money on behalf of anyone else. You're actually the first party to receive it. But you would need to go and get deals done with Apple and Spotify and YouTube and all these platforms, which could also take a long time, which would make sense for anyone who wasn't a talent agent that didn't already have and in and didn't already have relationships." So we got those deals done in a matter of weeks. That was our edge.

I was like, "Okay, this seems like a faster and easier path." At the time. It took us five years to actually build out all of ... not get the deals done. Getting the deals done was easy. It was the technical integration with these companies because you would assume that Spotify would have an API for this at the time. They didn't. They had this guy Frederick, who was living somewhere in the Nordic, I don't remember where, who we would put music and metadata into a drop zone. We'd have to wait for him to wake up, confirm that it all came through correctly. Sometimes it didn't. Sometimes the files were correct, we'd have to go back and forth and early on we could do this because we had a handful of clients, but quickly we're like, "Shit."

We got very lucky because we got the opportunity to work with one of the biggest acts in the world at the time who was becoming independent by the name of Frank Ocean and we were a part of his Blonde album, which is legendary because it was the one that he left the Universal traditional label system to become independent and everyone is wondering how did he do it and what platforms and tools is he using? It turned out it was us. So after the news of that came out, we exploded. Everyone wanted to use Stem. We didn't have a digital supply chain that was fully built up and so we had to invest in doing it to maintain ourselves, but that took years to build.

Bill Cilluffo:

That's amazing. That sounds very different than your original story there, so I appreciate that insight. The Frank Ocean example, someone who's going from "the establishment" to become independent and being outside the system. We like to try and talk to as many people as we can prior to this. I know we spoke to your husband JBeau prior to this interview and he particularly pointed out some of the challenges between being a disruptor like you are, but it's not like you're completely outside of the system either. I know some fintechs that we back are setting as their mission to sort of kill banks, but at some level they also have to rely on banks at the same time that they're trying to disrupt the status quo. How do you think about the challenges of simultaneously trying to be disruptive? That's what your whole business is about. At the same time you're living in an ecosystem and all of the existing players just set their mind to it. They could make your life pretty difficult. I'd love to hear you sort of talk about that aspect.

Milana Lewis:

It has been one of the biggest challenges is threading the needle so delicately, and I think that's one of the things that I've gotten a lot of praise from the board is my ability to navigate a really, really political environment with these people, the big establishment labels. I think for us it's the fact that we're not naive to the politics and we know how to work around it that gives us that competitive edge. There are a lot of product decisions along the way that we could have done where we would've been incredibly controversial and been like, "Fuck the man." That could have been our challenger voice, but it's never been. I think that has served us well because we're able to at this stage ... initially when we were just a music distribution company that was also doing payments but only for independent content, we weren't partnering with the labels, we were kind of competing with them for talent.

But the reality of our product, in order for us to be able to fulfill our mission, we know we need to be able to provide our technology and partner with existing labels and existing established companies because talent are no longer either just truly independent or truly with a major label. If you look at the top biggest acts in the world, they're kind of both. So Bad Bunny, Drake, Beyonce, Taylor Swift, they're technically independent. Sometimes they work with a major, sometimes they don't and sometimes they borrow the services of a major but actually own their right. This whole world is becoming more blurred and more autonomous and I think that insight is really important to our vision because what we realize is that we have to bring them to the water, we can't make them drink. So knowing that as we approach product has been really important because there's certain decisions that we make with that lens on knowing that there's certain things they're accustomed to doing, they're never going to change.

One very simple example of that was when we first launched Stem, we forced consensus on the contracts before we would distribute music, and that was very short-lived and it was something that the product team wanted to test and I knew it was never going to work, but I was like, "Let's run the test for a month. I'm willing to commit to that because maybe I'm wrong." Turned out that that was a big friction point because we held up releases in the industry. It wasn't the norm and normal behavior for the lawyers and the managers that are worked in it to agree on who owns what of a song before it comes out. Just was nearly impossible.

Bill Cilluffo:

That's stunning to me.

Milana Lewis:

I know, right?

Bill Cilluffo:

No wonder there's so many sort of issues and fights after the fact.

Milana Lewis:

Well, the first problem is how do you get people to agree on what they own before the song comes out? That was a big pain point. We thought we could force that decision. That was naive. We couldn't. What we ended up changing it too is like, "Yes, you can release the song, but we're not going to pay out on it even if the money comes through until there is consensus." What we learned is that in itself is even such a problem. If you delay that even longer, people forget who's in the recording studio. Legitimately. We've had artists who it takes years to clear up the splits because they can't remember and people keep coming out of the woodwork after the song is a success being like, "I was in the recording studio, I was there, this is the role I played." Then they have to figure out is that person bullshitting or was that actually real?

We also have people that end up being imprisoned or killed and therefore we can't get a hold of anyone on their end to be able to even set them up to get payment or confirm their percentage. There's a lot of really unique challenges because of the sector we work in and the behavior and the norms that make just even knowing who to pay a really big issue. Not even getting them paid, just knowing who.

Bill Cilluffo:

That could be the subject of a whole future podcast in and of itself. Can I switch gears a little bit from Stem the product and the customer facing side to more internal? You've obviously built a team. I'm sure you spend some time on customer facing market stuff, probably plenty of time on your team. I mean, I wonder if you could just talk a little bit about how do you think about building and growing your team? I mean, how do you think about your own leadership style? Love to hear some high level thoughts and we'll branch from there.

Milana Lewis:

It's definitely changed over the years. I think one of my biggest challenges was transitioning from the agency environment where a certain type of behavior is rewarded. So being incredibly hyperbolic and salesy and aggressive and abrasive is what's expected and also praised, and that does not work at all in a startup environment. The agency environment is one that people thrive on fear.

Bill Cilluffo:

That's interesting. I wonder why that is.

Milana Lewis:

Someone describes it as being an agent, you're reliving the cycle of death every single day. You're going to wake up and you have to be ready to kill because otherwise someone's going to kill you. They're going to kill a deal, a client's going to leave you, you're going to miss out on a big opportunity and you're going to get punished for that internally. You're just trained to have very little emotional attachment to things and you operate almost like a soldier where you're just pushing through every single day. That mentality took a year or two for me to break moving into the startup world, because being a leader, you can't be hyperbolic, you lose trust in your team very quickly. We definitely couldn't manage people by having them operate out of fear. That never works because then people don't innovate and they don't take chances and you're never going to be successful if that's the case as a company.

I got coaching really early on and I would describe my leadership style today as one of servitude where I feel like my job is to set the vision, clarify it, create the environment for people to do their absolute best work. Part of that to me is in line with our values of a commitment to growth, which really means that we want to make sure people are not afraid to fail, but they can be accountable for their failures in a safe space. So we encourage people to try things but be intentional about what their desired outcome looks like, and if it's not that, be able to pivot quickly with no shame.

Bill Cilluffo:

That sounds very different than a culture of fear from the talent agency world.

Milana Lewis:

It took a while to get there, don't get me wrong. It was not like, oh, I came in, I was like, "Okay, tomorrow I'm going to be this new person." I fucked up a lot. The way I look at my job now is how do I create the right environment? How do I set everyone up to be aligned with just enough context to be successful and how do I enable them and unblock them to do their best work?

Bill Cilluffo:

I love the example of you working with a coach early on. I think some people, and I think particularly founders, it's often difficult to ask for help. I think it's fantastic. Sometimes it's a coach, sometimes it's a mentor, sometimes it's family member, whomever. But the ability to ask for help and a commitment to change I think is really important.

Milana Lewis:

I also had two co-founders at the time who were very brutal about their feedback to me.

Bill Cilluffo:

You're getting feedback whether you wanted it or not?

Milana Lewis:

And maybe sometimes not in the most productive way, but it came through so clearly it helped shape me for the better.

Bill Cilluffo:

Makes sense. What's one thing that you're working on right now from a leadership or a management standpoint?

Milana Lewis:

We do an annual executive offset every year and part of it is this exercise where we go around the room, there's about eight or nine of us, and we give feedback in a format where we start with like, "Here's the thing that I really admire about you." So we share that thing that we all admire and then we go back around and we give feedback in the form of, "Here's what I want you to start or stop doing." Out of that, each of us consolidate ... think about the feedback we've gotten from the team when we make our one thing commitment. For me, that one thing commitment is have less sacred cows and be more clear about what they are.

Bill Cilluffo:

Have less sacred cows. That's wild. So in other words, there's a handful of just beliefs that you have that are immutable and unchallengeable and kind of a sense that maybe the right answer isn't to have zero of those, but maybe have less.

Milana Lewis:

And be more clear about what they are because otherwise the team will waste time trying to change my mind.

Bill Cilluffo:

That's interesting. I think that's really cool. I don't know that I've heard that one before. That's neat. I mean, look, I do think being flexible is important. I like the idea that, look, there's a couple things that I just believe so deeply in my bones that you're not going to change so let's be clear about that and don't spend time trying to change it. I mean, I think a leader clearly has to stand behind what they truly believe in, so I think that's great.

Milana Lewis:

I would say. But the challenge for me is how do I know when I'm right about that, when I'm wrong? That's the thing that I struggle with is because one of my beliefs that also guides my leadership style is that when people disagree or not aligned, it could very well be a fundamental disbelief, but oftentimes they're not looking at the same information, they have a different level of context. For me, it's like how do you build context that everyone is on the same playing field, looking at the same information and making decisions off of that? So I never know when I feel like I've tried ... when we're there, I will continue to push an issue and continue to try to bring more context to the table to get people to align with me and I just don't know when I'm wrong. That's the thing that I want to work on the most.

Bill Cilluffo:

I mean, being a CEO can definitely be a lonely job. How do you balance listening and learning and adapting and how do you balance sticking with your conviction? I would imagine that many of our listeners kind of struggle with that exact thing. All right. We did hear about at least one of these offsites that you guys run. I think it was Lexi, your community manager, who told us, we have to ask you about running in hamster wheels with your team. What's that all about?

Milana Lewis:

We did our first all company offsite in September this year in Austin. We actually had Adams come for a day or two from your team and I'm sure he can tell you more about that as well.

Bill Cilluffo:

I don't know if Adams is fitting in a hamster wheel, though. He's pretty tall.

Milana Lewis:

I think he did. I think he did. For us, this is the moment where we had just grown from a team of about 25 people in January to close to 70 by the time the retreat happened. We had exploded in the number of new people, many of which had never met. One issue that we saw culturally happening within the company that we needed to solve for and we could only solve for in person, was the fact that we had a nice people problem. Everyone was so nice and polite that they weren't giving enough constructive feedback because they didn't have enough connection with the people that they were dealing with or working with. They just wanted to be very polite. You can't grow and you can't have conflict unless you have trust. The purpose of the retreat was really three different pillars.

How do we create connection? How do we drive more context? If we do those two things well, how can we accelerate our ability to align? So on the first day as an icebreaker, I had the idea to do this thing called the game, which I had experienced a version of by going to this conference called The Lobby and I love how that is an icebreaker. You break people off into teams, you put them through a series of challenges where they have to work together to win as a team, and the challenges are a combination of physical, mental, and creative. The other thing you should know about me is I grew up going to summer camp my whole life. I was a counselor up until my freshman year of college every summer. I believe that that's where I grew the most as an individual.

So I just took on the role of Counselor Milana for the week and day one we had the game and a part of the challenge was a hamster ball race. I had some other crazy ideas that got killed by the staff or my team, one of which I really wanted to do a food fight one day.

Bill Cilluffo:

Oh, that got killed? How could that get killed?

Milana Lewis:

That got killed and it was like the hotel that killed it, because they have so much wildlife on property, they were never going to let us do it inside and outside. It would've been a risk to the animals so of course I was like, "Okay, I don't want to put the animals at harm by having all the food on the ground and thrown around." Then the third idea that Lexi killed actually was ... so we had this beautiful stage that we set up in this room where it had soft seating and very vibey, and we rented these pine trees and I don't know how. Oh, I know how. The whole vision of the retreat came to me in a dream. I had a dream where we were at camp and I literally woke up the next morning and I called Tyler, who was our head of people operations at the time, and I was like, "Tyler, I need you to take notes. This is how the retreat's going to work."

I described everything from the arrival check-in where everyone got a bandana with their name embroidered on it, to the game, to the food fight, and this one part where we were on stage presenting the keynote Kristin, who's my partner in the business, was presenting and she hates when I do this shit to her, when I put her in uncomfortable position. One of the ideas was to have our CTO in a bear costume on stage frozen, and as she was presenting, to start approaching her and terrify her, and Lexi was like, "You cannot do that," and they really wanted to.

Bill Cilluffo:

I think you've been inadvertently shared with all of us what your next career is going to be once your time at Stem is finished. You are clearly starting the adult summer camp.

Milana Lewis:

For sure.

Bill Cilluffo:

There's no doubt.There's no doubt.

Milana Lewis:

Or a part of Stem, quite frankly. We'll see.

Bill Cilluffo:

A management consulting firm as part of it. I love it. Okay, so we're running a little late on time here so I'm going to ask you one or two other quick topics that I just want to hear before we wrap up. Talk to me a bit outside of work. I know one of the most challenging things, and probably for all of us in the startup industry, particularly for CEOs, is how do you turn it off? How do you get away? How do you sort of manage balancing life and work? Any kind of major things that you love to do outside of work and how do you find to make it work for you?

Milana Lewis:

I mean that's really hard because the things that most people do to turn off and enjoy are things I do for work. It's unfortunate, but going to shows feels like work to me. Travel, even if it's for a vacation, feels like work to me. That's actually been a really big challenge and there were moments of depression for me because I was like, "What do I like to do? I don't have no hobbies. I have no time for hobbies." Over COVID, I started to get million into golf, which Bill, you and I have played before. I'm not that good, you know that, but I enjoy it.

For me, being out on the golf course, which I haven't had as nearly as much time to do this year as I did over COVID obviously, really clears my brain. It's one of those things where you're without your cell phone, because the golf course doesn't allow it. You're doing something for four hours and you have to get out of your own head to be successful because if you're too much in your own head, your game's going to suck. That's one thing that I've started to really enjoy.

Bill Cilluffo:

Well, I can absolutely relate to that. I guess I've been at it more since the middle school days, but definitely accelerated during COVID. I mean, golf industry, again, separate topic, but an industry that was in about a 10-year-long decline that the COVID moment instantly turned around. I think a lot of people had a discovery like you. It's a great time to be outside, great time to be with friends, great way to unplug. I also think it's an interesting sport where no matter how new somebody is, no matter how good or bad they think they are, almost anyone can go hit one shot as good as the best professional. Maybe it's you make a 10-foot putt, maybe it's you hit a great chip shot. The couple good shots you have while you're learning definitely have a great way of bringing you back, and no matter how good you are, you're always going to hit a couple terrible shots that kind of keep you motivated to keep improving.

Milana Lewis:

I mean, is that one shot that keeps you coming back. You're right. I still vividly remember when we were playing a scramble, we were teeing off at one of the holes, which was a really weird one where there was a step downs and the greens were really small. I had the best shot until you guys played my ball and to me that was the most rewarding moment of my year pretty much.

Bill Cilluffo:

Well, that's awesome. We will definitely have to get out on the golf course again soon. That was a blast that day. Let me just close with one final question. Again, we kind of have our scripts for these things and I think I've only asked you about half the questions we have, but I know you've got a business to run, so I'm going to let you go, but just one final question I'd love to end with. You probably talked to many young entrepreneurs and you're probably asked for tips all the time. What's one piece of advice you would give from your experience to aspiring entrepreneurs?

Milana Lewis:

No one knows what they're doing anyway either. Just if you keep that in mind. My best advice to them is to realize that no one else does either.

Bill Cilluffo:

I think that's a great one. How do you break the imposter syndrome? Just realizing you've just got to get in there and do it, and you're going to learn as you go. I love the advice.

Milana Lewis:

The answer is you don't, it always sticks with you, but then you realize everyone else around you is an imposter too. You know how in school they tell you if you're afraid of public speaking, just imagine the rest of the classroom naked? It's kind of like that.

Bill Cilluffo:

Makes sense. Well, I certainly do feel that from time to time myself, so maybe that's another episode also. But Milana, it's been amazing having you, really appreciate all of your insights. I mean, we don't get the chance to talk about the music industry very often being in FinTech, and we're thrilled to be part of your story and help the combination of the music side with the financial services side. I think you guys have some amazing days ahead in your future.

Milana Lewis:

Thank you. One of the things we were talking about also in our executive offsite is how transformative it's been to have QED involved with the financial expertise that you guys bring to the table, and honestly, just your discipline and point of view of running what is a good and healthy business and how that's helped us refine our thinking and be more productive with what we're trying to do.

Bill Cilluffo:

We really, really appreciate the comment. With that, we will wrap. Listeners, thank you so much for joining us today and we hope you tune in next time. Thank you very much.

This has been the FinTech Thought Leaders podcast, your window into the world of venture capital and financial services with today's digital disruptors. QED is proud to provide the best FinTech advice you can get. To learn more or to read the full show notes from today's episode, check out qedinvestors.com and be sure to also follow QED on Twitter and LinkedIn at QED Investors. Thanks for listening.

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