Smartkarma, a fintech platform for independent analyst research, has largely completed its technology buildout, and its management is now focused on scaling it across targeted client segments globally.
“To scale requires robust channel partnerships, direct sales, great SEO and a good user journey,” said Raghav Kapoor, Singapore-based co-founder.
This works out to strong UX (user experience) to funnel in more customers while creating premium services to monetize the most out of the top users.
“In the next three years we want to get to millions of monthly active users,” Kapoor said. He didn’t disclose how many users Smartkarma has today, but he did compare his goal with Bloomberg, which sells terminals to around 320,000 users.
“I’m talking about scale that really moves the market,” he said.
Serving new demand
Of course, a Bloomberg terminal offers more than just research and content. Smartkarma was established to focus on that large niche service in capital markets.
Kapoor got the idea in 2014 while helping to set up a family office, and found it difficult to access institutional services for research, products, and trading. Overall, large financial institutions were pulling back from providing research, both for economic reasons and in response to European regulations requiring them to unbundle pricing research from trading and execution.
Smartkarma focused on the research leg, with Asia at the heart of its business, because the region is home to a fast-growing coterie of millionaires and billionaires. The company launched in 2016 to build a decentralized platform for independent analysts, mostly recruited from investment banks. But it’s taken this long to make the business sustainable.
Part of that pace was deliberate. “We want everyone to use us, and not feel threatened by us,” Kapoor said. At the time there was little sell-side research outside of the banks, and today Smartkarma has close to 200 independent analysts using it.
“They exist partly because of us,” Kapoor said, noting that many of these analysts are entrepreneurial, but didn’t know how to grow their business alone or survive without a bank’s commissions on trades related to their work. Smartkarma spent its early years “trying to derisk your departure from the bank,” Kapoor said, with infrastructure, client onboarding, and payments being taken care of by the platform.
The fintech then developed its own algorithm to work out pricing of research. Kapoor calls it quantified value add, or QVA. “It’s a model to determine the monetization of time,” he said. The platform calculates responses to a given piece of research, including likes, shares, follows, and comments. This calculation gives each analyst a credibility score, which tells them how much they’ll get paid out of the pool of all of Smartkarma’s subscriptions.
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“The result is that investors get the research they actually want,” Kapoor said, asserting the platform has a higher level of readership and engagement than a bank’s research team. Bank research is either too geared toward pleasing an issuer, or too commoditized, whereas a platform like Smartkarma allows for specialists to find their audience.
Now the fintech is using that data to work out how to upsell. “The long-term marginal value of written research trends to zero,” Kapoor said. But written content can drive higher-end services, such as paying for access to analysts and getting them to build financial models or provide private insights – but on a subscription basis, not as project one-offs, so Smartkarma doesn’t get sucked into providing high-touch services that don’t scale.
The company has recently built customer segments, to better service and upsell funds, institutions, corporates, and family offices. Kapoor says the platform’s tech is largely completed, so the emphasis is on search-engine optimization and a friendly UX to hoover up new business, and partnerships to distribute research more widely.
Adding digital assets
“Our user base has grown by 10 times over the past 18 months, but we’re still tiny, and could do another 10x – but it gets harder.” DigFin could not independently verify Kapoor’s numbers, but he says the platform now services 10 bulge-bracket banks, four stock exchanges, hundreds of asset managers, and thousands of corporates and family offices.
Looking ahead, he believes integrating digital assets will be the next move. “This is the big trend in capital markets,” he said. Smartkarma began offering research on this field in early 2021 and is now building relationships with digital-asset exchanges. He says a coming trend for research will be exploring governance around digital assets.
Smartkarma is not yet profitable but it hasn’t needed to raise outside money for three years. Kapoor’s partner Jon Foster is responsible for the company’s eventual exit, be it via IPO or a strategic sale. “Whether we trade or list, someone will invest in this business,” Kapoor said.