Mapping the future of the capital markets tech stack
For the past year, I’ve been spending time in the Fintech Capital Markets space. Capital markets are the oil of modern commerce, with trading volumes and fees that dwarf anything I’ve ever seen in consumer and SME banking space… yet innovation lags far behind it, and the sector has attracted relatively little VC investment. A case in point is today’s announcement that the S&P has made an offer to buy IHS Markit for $44B, and the company has never taken a penny of VC funding.
CB insights has written an excellent primer on the disruption of investment banking, but inspired by Pietro at Stride’s brilliant Future of Work piece, here’s a more personal list of unique companies & ideas alongside a market map and selected investors.
If you’re building a company in this space that you think should be included, please let me know!
1. Startups shaping “the new capital markets tech stack”
If you’d rather look at the spreadsheet that informed this piece of work, please click here to access the full list, which includes investors, company descriptions and links to Crunchbase*.
*in the OMERS Ventures portfolio
The oldest “-gen” category in this space. A lot of companies are still cropping up, spurred by the great generational wealth transfer from Baby Boomers and the large advice gap for mass affluents customers.
- Indexa Capital, InbestMe, Finizens, MoneyFarm, Moneybox; Fundler, Nord.Investments, Nutmeg — Low cost index funds, cheap diversification and automated savings with a focus on UX
- Rosecut, Fina Technologies, Scaleable Capital, BetterWealth, SigFig — focused on financial planning and tailored advice
Robinhood led the way, but a new generation of European neobrokers is capitalising on a wave of retail interest in stock trading, particularly among younger age groups.
- Freetrade, TradeRepublic — focused on fractional shares
- Trade212, Bux, Nextmarket — started with CFDs, moving into shares
1.3 Access to institutional assets for small investors
Retail and smaller institutions have typically been unable to access institutional assets, from IPO allocations to top-class private equity funds. The companies below are changing that:
- PrimaryBid*, IPOHub — access to primary equity issuance in the public markets
- WiseAlpha — access to institutional grade corporate bonds
- Eleven, Moonfare, BITE Investments — access to closed shop top quartile private equity and hedge funds
- Artinvest, CRED Investments — access to alternatives (investing in artworks and top tier athletes’ career earnings respectively)
- Flagstone*, Raisin, Deposit Solutions — access to best in markets treasury / saving rates
- Seeders/Crowdcube/Kickstarter — crowdfunding
- Equify, Pulley , Seedlegals - next gen competitors to Carta and SecondMarket
*in the OMERS Ventures portfolio
Most of the world’s assets, from infrastructure bonds to commodities are still traded bilaterally (vs. on a regulated exchange). The startups below are using technology to bring the advantages of exchanges — liquidity, price discovery, multiple participants and smaller bid-ask spreads — to more asset classes.
- Metalshub, Goldex — commodities / gold trading
- EIX — new infrastructure bond exchange
- Akinova — exchange for reinsurance capacity
- Enmacc — energy trading platform
- CrossLend, TreasurySpring, Acatus — institutional grade debt
- Alternative Derivatives Exchange — digital asset /atlcoin futures
1.5 Trading efficiency
Once the strategy and a decision to make a trade has been made, the process of routing and executing the order can be done efficiently by software. These cloud-based businesses are making the case that they can help execute complex trades trades faster, more cheaply, and with less exposure to regulatory risk.
- Capitolis, Cobalt — focused on cost-effective post trade execution
- OpenGamma — focused on automated margin management
- DerivativePath — focused on managing client derivative and hedging programs
- Kayenta, DriveWealth: focused on hedge fund treasury and stock clearing and lending
These startups are simplifying the connectivity required to trade on multiple venues via one-to-many API integrations. This saves time and effort on the technical integration side, and also helps drive better pricing with access to multiple outlets.
- Transficc, Axe trading — connecting traders to multiple fixed income execution venues and data sources
- Alpaca — APIs connecting all the software tools needed for large scale stock trading
- Calastone — tackling the mutual fund supermarket industry, with connectivity to thousands of trading counterparties
For many, the idea that asset managers would be able to trade from home over the cloud would have been unthinkable just a year ago. It’s a compliance nightmare — monitoring financial services employees remotely while making sure they have the tools they need to do their jobs. The startups below are either helping employees on the trade execution side, or else on-boarding new customers in a compliant way.
- Symphony, SteelEye, FeedStock — compliance tools for monitoring remote workers as well as secure, rapid team communications.
- Salv, Pibisi, Arachnys, ComplyAdvantage, Veriff — automated KYC and AML monitoring for financial companies
In the last couple of years, equities holdings across the UK and the US have just flipped to more than half of them being held in passive investments (largely ETFs and mutual funds).
- BITA is providing an indexation platform that allows any passive investment house to define, maintain and scale index operations.
Active managers will argue that they can justify their fees by beating their index. To do this all active managers need legal, compliant and clean data advantages. Every active manager is now in the data business. These startups are ones to watch:
- Du.co, dvo1, Finbourne, Mosaic Smart Data, Intrinio — focussed on improving data usability via standardisation, cleansing, and recon
- Ticksmith, Harbr, Privitar — focussed on allowing FIs to share or sell anonymized data
- Credit Benchmark: credit risk data
- Simudyne: large scale trade simulation
- Kayrros: satellite data feeds and analytics for commodities
- DataBento: lower barriers to access live market data
1.8 Modular digitisation for Financial Institutions
Larger financial institutions are aware that they need to improve the digital UX experience for the end customers and their employees. This crop of start-ups is focused on low code digitisation for the enterprise.
Focused on the end customer experience:
- FintechOS, Abaka, D1g1t, Alpima — low code digital customer experience platforms for large FIs.
- Tumelo — focused on providing look through to underlying asset ownership for customers with assets in pension plans, mutual funds, etc.
Focused on the professional trader experience:
2. Start-up ideas
2.1 Startup idea no 1: neo Prime Brokerage (“PB”)
Prime Brokerages are highly valuable parts of the investment bank, generating north of $30bln annually in fees. They help hedge funds and other big investments clients handle large investment transactions. Their customers typically trade on margin or need to borrow securities or cash. PBs generate fees by internally netting off their customers’ positions against each other while charging customers gross fees, leading to higher costs for their users. A neo-PB, set up for netting on day 1, will be able to dramatically reduce cost for their customers.
2.2 Startup idea no 2: neo Clearer (DriveWealth for Europe)
DriveWealth is a US based neoclearer that powers Robinhood, Revolut, Freetrade, Moneylion and others. There is no European equivalent that I know of — yet!
2.3 Startup idea no 3: IPO readiness consultancy + software
Banks typically help companies get their reporting and forecasting “IPO-ready” for “free” in exchange for the IPO mandate down the line. However, direct listings and SPACS (by some measures, 40% of the IPOs in the last year have been via SPAC) are disrupting the process. BUT companies still need to get ready for listing, and are willing to pay for the help. A mix of ultra-discreet consultancy and forecasting software that integrates with companies ERPs and ingests their data to help companies get ready for listing would be highly valuable and additive to the ecosystem.
2.4 Startup idea no 4: Snowflake for financial data and applications
From my colleague Dan Childs: Startups in capital markets spend vast amounts of time, money and resources on integrating to market data sets and applications. These integrations are table stakes to even start building product. We see a need for a single stop service that removes the integration pain for these firms, a snowflake for financial data and applications.
3. Investors in the space
The same names come up pretty frequently in the linked spreadsheet. Specialist VC firms like Illuminate Financial, P3, Anthemis, FSIV (ex Eight Roads), Augmentum, Draper and HambroPerks are well-represented, as well as the Accels, Indexes and Sequoias of the world. The angels are a much more diverse bunch, probably because there’s a large group of wealthy bankers and asset managers who tend to back ex-colleagues in the space. A few names do tend to come up, such as Chris Conde, Chris Adselbach, Charlie Songhurst, and specialist incubators like Level 39. As the space hots up, I expect to see many more.
4. Thanks and disclaimers
I owe huge thanks to my brilliant OMERS colleagues Dan Childs and Will Dufton who have been working with me on our capital markets tech thesis over the past few months, to Harry Briggs for suggesting I write this piece, and to my colleagues Elodie and Meri Beckwith for their help with putting this together.
Disclaimer 1 : This is not an attempt at including every single business in these categories. I’m sure I’ve not included tonnes, but rather this is a selection of (usually VC backed) companies I find compelling.
Disclaimer 2: While I’ve included some North American players, this is a European heavy list.
Disclaimer 3: Most of these businesses fit across categories, but I’ve picked the one that seems most relevant to me.
Disclaimer 4: This is definitely not an exhaustive list, rather it’s a group of companies (usually pretty early stage and VC backed) that I find compelling.
Disclaimer 5: This piece doesn’t particularly focus on blockchain companies (or it would be way too long)
Finally, if you’re building a company in this space or would like to be added to the list of companies in this post, please get in touch!