MARKETS & INVESTING | Krisana Gallezo-Estaura, Singapore

This startup wants to become the ‘Spotify’ for investment research

It just raised over US$4.7million.

Smartkarma, a collaborative marketplace for investment research, aims to radically change the way institutional investors create, distribute and consume investment insights. Traditionally, research on financial markets has come from investment banks. This is changing post the global financial crisis due to a focus on cost cutting, increased regulatory scrutiny, and margin compression. There has also been a separation of research costs from dealing commissions by EU regulators under MiFID II, meaning investors will see the true cost of research for the first time. This has shaken the research industry to its core, but has provided an opportunity for the industry to find a better way to access investment insight.

In the same way that Spotify provides access to all its music on the platform, Smartkarma does the same with investment research.

“We have over 400 independent research providers with qualifications ranging from ex-Wall street analysts, to data scientists and academics. Our customers have unlimited, personalised access to all the Insight on the platform for one single subscription fee,” explains Raghav Kapoor, CEO and Co-Founder of Smartkarma.

Smartkarma claims of breaking down traditional silos and bringing efficiency to a global industry that has long suffered from opaque pricing and bloated cost structures. Its vision is to bring simplicity, efficiency and transparency to the investing world.

“While leadership has emerged in certain areas of bank-sector disintermediation, we notice that certain other areas are relatively unchanged. A prominent vertical we focus on is Capital Markets. This sits down-right-center in an investment bank, and has long been the source of high-margin business. Given the nuanced nature of underlying activity, and sophisticated audience, this area has been left largely unchanged,” noted Raghav.

Raghav shared that when they speak to their stakeholders, they described what they see as a sweeping change across capital markets, as they get replaced by digital marketplaces - bringing efficiency, transparency and collaboration in a space that's long suffered from conflicts, obfuscated pricing and bloated cost structures. This, he said, would also mean a shift from agency-principal to peer-to-peer networks.

“Existing models for consuming investment research were broken and this has been supported by high profile changes at leading investment banks,” claimed Raghav. He cited for example Nomura announcing a complete exit from European equity capital markets in April 2016; in January 2016, Barclays departing from Asian capital markets; And a year before that, Standard Chartered announcing the closure of its Asian Equities business.

“These closures, along with a focus on cutting costs and the finalisation of new MiFID regulations in the EU, have meant the industry is wide open for change,” said Raghav.

According to Raghav, Smartkarma was created to help investors optimize research spend and enhance returns, while accessing the widest range of global analysis of Asian markets available. By providing a much needed alternative to traditional research models, Raghav claims that this has resulted in Smartkarma becoming Asia’s largest independent and collaborative ecosystem for investment research in a short time span.

Smartkarma was founded in September 2014 by Raghav together with Jonathan Foster and Lee Mitchell, who all have roots in the investment industry.

Raghav, 34, is originally from India, but came to Singapore for junior college and went on to attend Cambridge University and later Stanford University. He began his career in finance with Citigroup and went on to launch a boutique brokerage house, Aviate Global (Asia), which was later acquired by Religare Capital Markets. He was ranked as Asia’s Number 1 investment idea generator from 2011 to 2013, based on the performance analysis of over a million top investment ideas.

Jon, 43, hails from the UK but spent most of his adulthood in Australia and Singapore. Jon has spent more than 15 years in Asian financial markets, specializing in Equity Special Situations on both the buy and sell side. Over his career Jon has built several specialist research driven businesses that differentiate themselves from the dominant players. Prior to co-founding Smartkarma, Jon was a Director at Religare Capital Markets, where he headed the Global Special Situations Group. He was also a founding partner and director at Aviate Global (Asia) prior to its successful sale to Religare.

Lee Mitchell, 40, is from Melbourne, Australia. Lee’s career has focused around trading in Asian special situations. Lee has built and led a number of teams, inspiring his colleagues with creative and intelligent best sales practices. Prior to co-founding Smartkarma, Lee was a sales trader at Aviate Global when it was bought by Religare, and was a director at Religare Capital Markets within the Global Special Situations team. Prior to Religare, Lee held the position of Head of Sales Trading at Churchill Capital Australia.

Over the next 3 months, the founders injected enough personal capital to cover all costs for the first year of operations and fund the creation of a world-class team. They raised their proof of concept round in January 2015 and set about executing.

In their early days, they worked out of Raghav’s attic, steadily yet quietly building blueprints for Smartkarma. For this task, they interviewed hundreds of senior industry people to understand what research and investing meant to them. This ultimately led them to formalise their Advisory Council.

Smartkarma recently announced the results of their second round of funding, which raised USD 4.7 million, bringing our total amount raised to USD 7.5 million. The investment was led by a number of institutions including Wavemaker Partners, Jungle Ventures, a group led by Mr Koh Boon Hwee, former Chairman of Singapore Telecommunications as well as several prominent industry leaders such as Mr Tan Chin Hwee.

Smartkarma launched out of beta in April 2016. In just over one year since launch, Smartkarma has grown to be over three times the size of the largest Asia-based bulge bracket research team. With customers that span the globe including the Americas (40%), Europe (25%), and Asia Pacific (35%), Smartkarma is on a mission to challenge conventional thinking and change how market participants view, value and drive idea generation, fostering a new standard of industry dialogue and cooperation.

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