250/60/4: Consumer Finance

Happy Tuesday. It’s been two weeks but I have been a little busy building some fun projects on the side. One I’ll likely be able to share within the coming weeks.  

A few months ago I looked at Opendoor stock because I always found the concept interesting and thought it could work. I decided to pass for a few reasons, but that didn’t stop the meme-stock crowd from bumping the stock up nearly 3x right in my face. 

Chart of the Week: ETH/BTC

$4m

A little bit of a different approach here. Today I am going to do what you call a request for startup. I am going to outline an idea I have that I would love to invest in. This would mean throwing $4m behind whatever team is building something like it, or adjacent to it. I’ll outline my hypothesis, some context, and then a few potential ways to build the solution. 

Background

After spending my high school years as a kid who was super interested in the stock market, I find myself in a position where a lot of my friends still come to me for investing advice and are willing to share their financial strategy and situation. 

This has changed throughout the years, but more recently I am seeing an interesting transition. The friends who never asked me are all the sudden starting to ask a lot of questions. The main theme is a lot of people around my age group are starting to hit decent wealth milestones (think $50,000-$100,000).

These folks are either

1. Investing on their own accord. 

2. Sitting on cash and looking for some place to put it. 

One of the most common questions I get is “what ETFs should I buy?”. With 4,000 active ETFs on the market, most people have no idea where to start and follow the advice of peers or parents. These individuals also look to invest in individual stocks on occasion and are looking for confirmation on what to buy.

Hypothesis

Using a mix of great branding, technology, and human touch, some company or firm will start to capture a large majority of adults with under $250k. This firm will leverage AI in a meaningful and delightful way for these both experienced and first time long-term investors.

Solution Areas

There are a few stipulations with a product/company like this: 

1. This should not be treated like a technology startup, it should be treated like a wealth management firm. This means no emphasis on user growth KPIs, technology metrics, etc. 

2. At the same time, this should be a technology driven product. Every piece of technology the user touches should feel deliberate and meaningful. It should be driven largely by AI, but at the end of the journey users should have the ability to be in touch with a human. At the end of the day, human trust in the financial wealth market is still winning. 

Those two points above contradict themself a little bit, but from my time in the consumer financial markets, the supply side of these solutions is heavily saturated. Titan, Betterment, Wealthfront, Origin, traditional RIA’s, traditional ETFs, there are dozens of ways for young adults to invest their money. This heavy supply side leads to high customer acquisition costs for any product that is looking to take a user's entire financial life under their umbrella. There is also an increasing appetite for AI to take a part in managing someone's finances.

Here are a few ways I think a company could be formed in this space and have success. These ideas are ones that I would essentially look to invest the hypothetical $4m in: 

1. Specialized ETF Shop 

   1. There are over 4,000 ETFs that are tradable in the US stock market. Everyone usually buys the same SPY or VOO, but most of these ETF manager shops lack significant branding and marketing among the younger generation. I believe we will see an ETF shop come along that builds easy, simple to understand ETFs that gains market share with the young adult crowd. 

2. Asset Management technology

   1. Right now, there are a lot of people who have assets spread across multiple platforms. These users hold stocks, crypto, and maybe even private investments. Managing all these investments and the tax implications with them is very complex. Leveraging AI, you could easily build an asset management platform that almost acts as someone's own holding company. 

3. Back-office technology   

   1. Some of this has already been created, but AI has the power to allow wealth managers and RIAs to be more efficient with their time. This means instead of handling only 250 clients, they can maybe handle 500 or 750. Doubling or tripling your client base due to a technology that you can either acquire or build internally can become very powerful. 

Investment Note

So the point is, I believe there will continue to be rapid innovation in the consumer finance market and I want to essentially hold $4m to be able to invest in one of these companies at a later date. I will continue to update whenever I find a company that seems to be worth the valuation.