Fintech Boom: RiskSave hits Target in Just Four Days
There is no doubt that fintech is the buzz word in the financial services sector with disruptive technologies set to fundamentally change our relationship with banks, asset managers and financial advisers.
This relatively recent portmanteau is used to include a very wide range of services and technologies that differ greatly in terms of their target and sophistication.
However, in a way that is more than a little reminiscent of the dotcom years, there is currently a land grab as new kids on the block seek to put a stake in the ground whilst the old guard ponder the challenges and eye the opportunities.
Earlier this year Cardiff based Wealthify announced that it intended to raise £1 million through crowdfunder Seedrs and Scalable Capital came to market having raised £8.8 million.
Just this week, soon to be robo-advice startup, RiskSave Technologies met its equity crowdfunding target of £150,000 in just four days.
RiskSave made a pre-money valuation of £6m for its business, offering just 2.92% equity for the initial investment and investors hurried to fund the platform which will join an ever growing number of digital wealth management platforms.
Few developments have caused quite such a stir as robo-advice as it seems to be a disruptive technology with the potential to change the future of asset management forever – broadening the reach of investor services and lowering fees for advice.
Whilst public awareness of robo-advice still remains relatively poor a recent survey by A T Kearney concluded that robo-advisory services will become mainstream among US investors over the next 3/5 years and the total AUM will increase by 68% p.a. to more than about $2.2 trillion by 2020.
‘a disruptive technology with the potential to change the future of asset management forever’
UK consumers are expected to be broadly aligned with their US counterparts in terms of their adoption rate.
A key target for these next generation advisers are tech-savvy millennials although early adopters appear to have been relatively wealthy, more sophisticated investors looking to keep fees as low as possible
Most robo-advice platforms effectively automate conventional portfolio management theorem, but RiskSave has developed its own concept which brings risk management techniques previously only available to institutions and high-net-worth individuals, to all investors with low, transparent pricing.
Dan Tammas-Hastings, CEO of RiskSave explains: ‘The RiskSave model disrupts modern portfolio theory (MPT -1952) which was developed in the 1950s and described the investment requirements of a wealthy academic. In the modern world, investors have concerns such as retirement, long-term healthcare costs and constant liquidity needs, none of which are captured by MPT. RiskSave uses the modern investment universe to better match the risk-return requirements of the modern investor. Our ideas are a natural progression of existing competition, but with 60 years more data meaning we can deliver higher returns with lower risk.’”
Modern Portfolio Theory remains the basis of modern asset management and is considered ripe for disruption by the next generation of wealth managers as it is considered to cope badly with inefficient markets and delivers a theoretical solution that fared less well in the real world.
Developed in the mid 1990s, the Risk Parity approach coped better with cross market correlations, creating a more balanced portfolio with better returns; $100 billion is currently managed according to this method.
RiskSave claims that its solution takes asset management to the next level by using first principles rather than back testing, creating a portfolio that can outperform previous templates, but with less risk.
The company plans to use the funds raised to expand its development team, hire an institutional salesman, fund customer acquisition and develop new revenue streams; international expansion into Europe is planned to follow shortly.
The company expects to be generating platform fees from its initial target of 1,000 customers by January 2017 and institutional fees and software licensing revenue will accrue after year one; forecasts for 2019 are revenue of £6.6m and a net profit of £5.2m.
RiskSave has a lean operating structure rewarding staff with equity rather than salary meaning it could be self-funding in the short-term but has not ruled out a Series A funding round in 2017.
‘the opportunity to buy into an emerging and dynamic sector’
The pitch on Crowdcube gave comparable valuations for other players in the sector but potential funders grilled Tammas-Hastings regarding the valuation of the business, who countered by saying: ‘We could have gone higher, but we strike a balance between rewarding employees and allowing upside to investors and new joiners – Robo-Advice is a growing industry and on a comparable basis we are priced at a 50 per cent discount if not more.’
The £6m valuation is primarily based upon the intellectual property rights for the model which the founders have transferred to the company; investors are buying IP which has a residual value as well as the opportunity to buy into an emerging and dynamic sector.
Down the line Tammas-Hastings sees multiple potential acquirers or believes that a smaller stock market IPO could be a possibility by year four.