Michael Giles pitches his backend as a service for financial applications. Then Nikhil Kalghatgi with Vast Ventures determines whether or not he will invest in today’s startup, Third Party Trade. And at the end of the episode you’ll hear a bonus pitch from Conversant Labs.
Sponsors
- HostPapa – get 15% off their shared web hosting plans
- WooCommerce – build the store you want for less
Episode transcript
Welcome to The Pitch. I’m your host Josh Muccio. Today we’re taking a deep dive down under as we hear one founder’s pitch to investors. We’ll hear the response from those investors and you’ll hear about the founder’s successes as well as his failures.
Michael Giles: Unfortunately, I let it drop.
Sheel Mohnot: Oh no!
Michael: One of the biggest mistakes of my life.
That’s Michael Giles, founder of Third Party Trade. Let’s pretend you’re building the next stock trading app, like Robinhood. Michael’s company can provide the entire back-end API needed to power your new game-changing app, saving you years in development time. It’s an exciting day in the studio, as we’ve got Nikhil Kalghatgi joining us again.
Nikhil: So how do you keep people addicted to your product?
Nikhil’s asking the big questions. And Sheel, my co-host, wants to hear about Third Party Trade not just as an investor but as a potential customer for one of his companies. You’ll hear the story behind that on the second half of today’s show. Here’s the pitch from Michael.
Michael: So Third Party Trade is a developer platform to build financial applications. The problem that we’re looking to solve is the time that it takes to build a brokerage or wealth-management company. So all of that core infrastructure that you have to build, companies tend to do it over and over again. So what we’ve done is we’ve essentially productized all of that. Basically, we aim to be a one-stop shop. What that means is that behind us there’s a bunch of different vendors. Companies like Apex Clearing. We’ve done a partnership with Plaid. We can verify bank accounts instantly. And we’re getting a bunch of traction from other start-ups, actually. So kind of like how Stripe started out. Solving payments for early stage companies. That’s sort of what we’re doing with mainly wealth management.
Sheel: So that’s like robo-advisors?
Michael: Yep.
Sheel: So what you’re replacing is –
This is Sheel Mohnot, my co-host and investor at 500 Startups.
Sheel: The robo would have to go out to Apex and Plaid and all these other guys and build different integrations. So it’s one integration with you, and you handle everything else?
Michael: Yep.
Sheel: Conceivably, you could actually, if you wanted to, rip out any of the other folks and replace them.
Michael: Yeah, potentially, in the future. We are building it so that certain services could be switched out. But the value that we add is that if you were go to Apex directly, you would have to negotiate your contract with them.
Sheel: Yeah. There would be a minimum per month.
Michael: A minimum per month, hard deposits, things like that.
Nikhil: How much time are you saving folks?
Michael: What we say is that you can get your product launched in weeks not years. So if you were really to do everything from scratch it would take you probably nearly two years.
Nikhil: So it’s saving time?
That’s Nikhil Kalghatgi, he’s an investor at Vast Ventures and a regular on this show.
Michael: It’s saving, presumably, some money? Because you’re getting better deals.
Nikhil: So how much money are you saving across your top three biggest features?
Michael: We probably take it from about a half a million-dollar exercise to one-twentieth of that.
Sheel: And do you charge it as a SAAS business or AUM?
Michael: We charge minimums. And we are actually quite selective. So we want to work with companies that have a decent prospect of hopefully doing pretty well. Obviously, it’s pretty hard to decide what that is.
Sheel: So you should be doing our job.
Michael: Yeah. I was going to say that.
Nikhil: So how many folks are using it now?
Michael: It’s still early days. There aren’t that many companies that are launched on TBT. But we’re just commercializing what we’ve built over the past two years. So this month is a big month for us.
Sheel: How many folks do you have coming aboard?
Michael: We’ll probably sign up five customers next month.
Sheel: And how much revenue will that represent?
Michael: Some of the deals actually vary a little bit. We’ve had some interested people wanting to pay in advance. They’ve just raised money.
Nikhil: I highly recommend taking people’s money.
Sheel: Yeah. Definitely take it in advance. Give them a discount or whatever it needs.
Michael: Yeah. Our standard rates are anything from $500 to $5000 a month.
Nikhil: Got it. So are larger companies interested in working with you, too?
Michael: Yes. They definitely are. So we’ve had a few large companies come to us recently that surprisingly, or maybe unsurprisingly, don’t really know how to build out the whole backend. So they’ve been working on the front end, they’ve built a prototype, but they haven’t figured out exactly how they’re going to do the backend.
Sheel: Sell me on the market size. Like, are there enough companies that want this? Just help me wrap my arms around that.
Michael: Well, it’s really hard to gauge the market size. What we say is, we look at the customers that they’re probably going to serve. One market that’s very interesting is China. So there’s 107 million stock traders in China.
Nikhil: Wow. So the plan is to get folks in young, when they’re early, and don’t have the capital, presumably, or don’t want to invest the time. So the folks you’d be excluding would be folks that have time and capital?
Michael: It’s interesting that you say the large companies that have time. I would actually say that everyone wants to get their product to market as soon as possible. Like, we certainly get more traction with earlier stage companies because they would prefer to hang on to the half million dollars instead of deploy it. These days, large financial companies are pretty open to working with early stage companies. But certainly companies that have a lot more money probably think they can do it all themselves.
Nikhil: Did you start this with the purpose of launching your own brokerage?
Michael: I ran a brokerage that I started in 2004 in Australia. And I experienced a hell of a lot of pain on how to run a brokerage. After that business, I started another one called Roboinvest. And that business was actually integrated with E-Trade. So we were the first product to integrate with E-Trade’s API that they launched. In fact, I was over in San Francisco in August 2010 pitching them the concept and they liked it. But I learned a lot of lessons on what it takes to be a developer on someone else’s API like that. And the idea behind Roboinvest was about building an automated investing platform. Unfortunately, it was too early. We actually owned Roboadvisor.com. That’s how early it was.
Sheel: Do you still own it?
Michael: No. Unfortunately, I let it drop.
Sheel: Oh no!
Michael: One of the biggest mistakes of my life. Would have been a few drinks in that one.
Sheel: Yeah.
Michael: So I left to start TPT because I still noticed people doing the same things over and over again, which is rebuilding everything from scratch. It reminds me of when companies, before they launched their website, they would spend millions of dollars on servers and create their own infrastructure. It’s crazy. Why would you rather deploy half a million dollars as opposed to a couple of grand a month?
Nikhil: So how do you keep people addicted to your product?
Michael: We’re continuously rolling out new features. So we have 100% real time API driven account opening. We have the ability to trade on behalf of many customer accounts. So an advisor needs to do that. A lot of people like fractions. We have the ability to trade fractions. We have multiple ways of moving money. So not everybody has the ability to take funds from a debit card, for example. And with the integration of Plaid we can do the ACHs on the same day because we can verify the bank account instantly. So we keep innovating, we keep adding new features. I think that’s all you can do, really.
Nikhil: How do you attract the best customer for you? Who is the best customer for you? How do you identify them?
Michael: Well, it’s a good question, how do you find the customers. I mean, it’s not like there’s something that pings you every time someone wants to start a robo-advisor, right?
Sheel: Yeah, exactly.
Nikhil: Well, if you had roboadvisor.com maybe there would be.
Michael: That ship has sailed, unfortunately. We get a lot of referrals. I would say that more than half of our customers come to us from trying out someone else’s product. And then they learn that it doesn’t do certain things that they need it to do. It doesn’t do fractions. You still have to make them DocuSign some paperwork. Which is bonkers to me.
Nikhil: How big is the team?
Michael: Small team. Five.
Sheel: How are you funded?
Michael: Just from private investors at the moment.
Nikhil: If you had $5 million in the bank right now, how it would change your strategy?
Michael: What I think it would do is give more assurance to our customers that we’re going to be around for ten years. When they’re building companies on your platform, you have to really show that strength.
Sheel: Absolutely.
Michael: And even though our balance sheet doesn’t affect customer accounts, because that’s Apex’s balance sheet.
Sheel: Well, you being around, of course, does.
Michael: Keeping the technology going and continually improving it. So I think that would probably change the biggest thing for us.
Nikhil: It was a trick question anyways. Hopefully it wouldn’t change your strategy.
Michael: It doesn’t really change the strategy, but it will certainly help close business for sure.
When we come back, Michael steps out of the studio and investors Sheel and Nikhil decide whether or not they’ll pursue investment. And stay tuned to the very end where you’ll hear a short pitch from a founder that’s building the user-interface layer to build apps that have no UI.
[sponsors]
Welcome back to The Pitch with Third Party Trade, or TPT for short. Let’s head back into the studio. Here’s Sheel and Nikhil.
Sheel: What do you think?
Nikhil: I think he’s solving a pain point that does exist for a small audience.
Sheel: That’s the worry, right? How big is the audience?
Nikhil: My worry is that, I don’t know if the world of robo-advisors, which I am not an expert on, if that world of robo-advisors is exclusively going to be dominated by start-ups.
Sheel: Right. I think that’s okay.
Nikhil: Right. But if it’s not a big enough market to begin with and then we’re cutting it in half by having big companies do it, that’s not a strong starting point.
Sheel: The question is, would a big company use this? Probably not. So the folks that have started robos that aren’t start-ups and have been successful are Schwab and Vanguard. They’re not using Apex for clearing. They don’t need all this stuff. They want to control the whole thing themselves. So that becomes a challenge. I mean, I’m happy this exists. I just don’t know if it’s a great business to invest in.
Nikhil: Yes. Well, we didn’t really get into the specifics of pricing and people’s willingness to pay. We heard a range, but I don’t know what people actually want to pay for it.
Sheel: I know I have three companies that are building on Apex. And it does cost them, like Apex wanted a minimum of $25k per month. I negotiated on behalf of all three of them to get it down to $10k per month. That’s still a lot of money for a start-up. So what these guys do makes a ton of sense. Even if you’re just aggregating demand that would make sense. I just wonder how many cents it makes.
Nikhil: I would say, the only other piece when you think about building a platform business, usually you want to be somewhere touching the base layer of the platform. In this, he’s sitting on top of tons of other services. Which is great. But that’s temporary advantages. Each one of those platforms. So here’s an example for you. When you build on top of iOS, you’re building on top of primarily one provider. And you may also integrate a whole host of other APIs and SDKs into your product. However, the core platform you’re really building on is singular. And it’s actually therefore easier for you to manage the relationship and the new features that come out and have a dialogue with them. As soon as you start building on four or five, which is why people want to use them, he’s now having to deal with four or five different relationships. Which is, again, good for the start-ups he’s serving, but makes his job very, very difficult. And if any one of them is a choke point for him, it could take the whole ship down. Alternatively, he could turn that choke point into a product he’s building in-house, which you kind of suggested. And all of a sudden, he’d be a much more powerful business. So there’s an opportunity there as well as a risk.
Sheel: Yeah. I actually like that aspect. There is an opportunity to be just an API for clearing. Like, Robinhood is built on Apex and all these other new guys are built on Apex too, but Apex is hard to work with and requires massive integration with all this other stuff. So I like the idea of that. And it sounds like these guys could go in that direction. The one company that I can think of that was doing something similar is called IP Commerce. And they built integrations into a bunch of payments companies via one API, you could access a bunch of them at once. They raised a bunch of money and then flamed out spectacularly, unfortunately.
Nikhil: Got it.
Sheel: Anyway, I think there’s something here, I’m just…
Nikhil: The one thing I would like to do, which you and I have both seen from some of our friends who have built financial services companies, is there often born out of the need in-house. Like he’s building his own robo-advisor, and then built all these tools in-house in order to manage it, and then realized that’s actually valuable for hundreds of other people. And all of a sudden you realize you’re going down two different courses at the same time. One, building a robo-advisor, and one building a platform to help people build robo-advisors. And you have to pick one at some point. But the value created from eating your own dog food is immeasurable.
Sheel: For sure.
Nikhil: So I’d love to see them put a minimum amount of resources into testing out their own features on their own product.
Sheel: Agreed. So the way this whole meeting came up and why he’s on the podcast is one of my companies that I invested in previously, called Ethic, is considering using Third Party Trade.
Nikhil: I hope they get a discount.
Sheel: So that’s how this whole thing came about. So he said, I’d love to chat with you, too. I said, hey, cool, yeah, come on the podcast.
Nikhil: Awesome.
Sheel: So overall?
Nikhil: I wouldn’t invest at this stage. I’d love to better understand the value proposition. But clearly he’s knowledgeable and I think there’s a little bit of lack of clarity on how big the market is still.
Sheel: Yeah. Same. I am excited to talk to Ethic more about their process and if they end up going with these guys. And then what that ends up looking like. And then if it is good, I would consider investing in this company at some point.
Thanks to Michael and Nikhil for being a part of today’s show.
If you’re a founder of an early-stage startup and your product is live, remember to apply for season two of our show by September 14th.
To join our weekly newsletter and get behind-the-scenes stuff that we don’t share on the podcast, go to thepitch.fm and subscribe by email. We’ll be back with a new episode next Wednesday. I’ll see you then.
The pitch you’re about to hear is from Chris Maury who recently went through our pitch coaching bootcamp. After our three-day remote coaching program, here’s the end result.
Chris Maury: Cool. So hi, I’m Chris Maury the founder of Conversant Labs and we’re making voice-based computing a reality. Products like Siri and Amazon Echo are really good. They’ve finally gotten to the point where they can understand what we say. But they still have a really hard time understanding what we mean. It takes a lot of data to understand the natural language that we use to interact with computers, and collecting this data is really expensive and can be a really big challenge. Not only for voice-based computing but for any product that uses artificial intelligence or machine learning. So we’re helping these AI-driven companies collect this data more quickly and more efficiently so that they can release a more responsive product sooner. And then once they have that data and they have that product out on the market, we’re helping them to manage that data so they can improve those algorithms over time. So we’re helping these AI-driven companies, like those building chat-bots or voice-based applications, to collect the training data they need faster, and before they launch their product so that they can release a more responsive product sooner, and then manage that data over time. So they continue to improve the intelligence of those algorithms. Our team is extremely mission driven. Everyone on the team has a masters from either Stanford, Carnegie Mellon, Brown, except for me. But I was a product manager at Klout before moving to Pittsburgh. And we’re going to make conversational computing a reality. Because five years ago I found out that I was going blind and this is the only way I can think of to keep doing what I’m doing.
Josh: So it’s like you guys are building the software as a service layer that sits between apps and the APIs they use, like Amazon Alexa or something like that? You guys build the interface between the two?
Chris: Yeah. Specifically for managing the training data that powers those apps.
Josh: Oh, so the actual intelligence?
Chris: Yeah. The actual intelligence. So we don’t have the AI algorithms, but we’re helping them to collect the data that powers those algorithms. And then learn from that data as they collect more and more through people actually using it to identify the highest value errors that they can then re-train to improve their performance.
Josh: Okay. One question, do you remember what your pitch was like before you got coached?
Chris: Yeah. It was a lot longer. I think it lasted like five minutes and it felt much more like a presentation than a conversation. And it focused a lot more on where the product is today and the features that it has today, rather than the future of what the opportunity is that we’re going after.
Josh: Yeah. It’s cool.