Unicorns are mythical beasts. In the VC world, they are high growth startups that achieve $1bn+ in valuation. In the investing world, a unicorn is an investment opportunity that offers seemingly unlimited upside, with no downside risk. In InvestTech, a unicorn is a technology that meets all technology needs across the entire investment life cycle.
The investment industry has been scaling new levels of complexity. The side of the ecosystem in which asset owners and investment consultants reside depends on:
- Complex modeling asset allocation analysis;
- Data heavy manager and deal sourcing;
- Workflows- document- and information-rich manager due diligence;
- Data- and analytics-heavy portfolio management and monitoring; and
- Customizable and visually rich reporting
While it may not meet all the requirements of modern investing, Microsoft has a robust grip in the industry, as its Office suite of products is perceived as being FREE, since it is already installed for all users and therefore does not involve added budgetary costs. However, since this software is not a purpose-built solution, the range and variety of outcomes can be unlimited across the spectrum of good to bad, and would entirely be a function of the investment process, portfolio complexity and level of integration. We say that our biggest competitor is Excel and Apathy, and we are only half joking. Below visualization would speak to that, and I doubt even Microsoft would have predicted the dominance it enjoys in the industry 😊.
Recognizing the potential for purpose-built tech and the complexity of the investment process, products have been created, but no one product suite has the dominance that Microsoft enjoys. Who would be the next unicorn to emerge from the InvestTech map below?
Did we miss your name in this tech map for institutional and wealth investors? Pls email email@example.com
So far, there isn’t a single technology which could do it all well, let alone do it all. Further, there is no dominant “unicorn” solution in this map. Firms that try to give clients a single experience go down one of two paths:
1. Build Features: Some firms may build feature extensions but then lose the core value proposition. Most tech build-out takes 2-3 years for mature functionality, and by the time the product is ready, the market has likely moved on. Often times, the complexity of managing multiple core propositions can lead to defeat.
2. Acquire Features: Other firms acquire and then integrate tech stacks to provide a seamless client experience. In the past year alone, we have seen Backstop-BarclayHedge, FE-fundinfo, Markit-iPreo, eVestment-Redquarry SS&C-Intralinks M&A transactions. However, it’s important that product visions, firm cultures, and tech architectures are aligned, or else the outcome is a patchwork quilt of tech. Further, given the fragmented landscape, acquisitions may not always produce category winners. In fact, acquisitive partnerships run the risk of taking away optionality from the offering itself.
The Path to Unicorn is Product Partnerships
The biggest potential for a unicorn to emerge is via integration between a series of excellent offerings by product leaders in each segment which focus on open integration of functionalities that serve different parts of the business. And this would include plugins for Excel, Outlook, and Word! We often underestimate simple solutions and opt for demanding and complex outcomes, making things harder than they need to be.
The more companies operate independently and even competitively, the more resources overall are drained. Old ways of thinking about competition look outdated in the more open environment of a new tech economy.
Partnerships create an opportunity to address client needs faster and even generate new ideas. This would be the new way of doing business, an innovative way to arrive at a unicorn solution.
In 2018 alone our firm engaged with more than a dozen other firms about integration. The biggest roadblock tends to be lack of open API culture on the part of our would-be partners, especially on-prem incumbent solutions. However, this is an area where we have seen a mindset shift, and a significant transformation is ahead of us. The responsibility to lead the industry rests on the creators of the product but is also shared by the users and technologists at the client firms. However strong the vision, it can only be executed well if both buyers and sellers share the same aspirations. Clients need to demand integration partnerships, not just new functionality. Iterative focus on this path will help the industry innovate faster, and clients adopt more easily while keeping the costs down for all involved.
We are betting that the firm that would be the InvestTech unicorn would be the one that is most collaborative. Will you be part of this exciting journey to discover the next unicorn?
Thank you for discussions and suggestions from Jensen Loke, Minh Nguyen, Uche Abalogu, our clients and prospects who have helped brainstorm concepts expressed in this article.
Disclosure: We are at the center of the universe here simply as authors of the industry map, and make no claim to having solved the integrated tech puzzle, not just yet! 😊