Andrew Patrick White is the founder and CEO of fundapps, a regulatory technology company founded 10 years ago. He completely bootstrapped fundapps and grew it from a small startup to over 60 people and 9 trillion USD in monitored client assets. The company provides Shareholder Disclosure software to Hedge Funds and other asset owners. Before founding fundapps, Andrew was a managing director at aquin components, a company that was acquired by State Street.
We start off our conversation by Andrew walking us through the space of regulation technology or regtech. He gives us a history of the space, and how the regulation technology industry changed over the years. We talk about the difficulties to adhere to all regulations globally as a Hedge Fund or Asset Owner (for about the first 30 minutes)
This episodes shows me again, why I love doing this podcast because we start in regtech and take an unforeseen and interesting turn and Andrew gives us a masterclass in the art of Bootstrapping a startup (starting around minute 30). Andrew shares tips about focus, culture and much more.
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Transcript
EPISODE 57
[INTRODUCTION][00:00:03] ANNOUNCER: Welcome to The Wall Street Lab Podcast, where we interview top financial professionals and deconstruct their practices to give you an insider look into the world of finance.
[EPISODE][00:00:22] AH: Hello and welcome to another episode of The Wall Street Lab Podcast. Our guest today is Andrew White. Andrew is the Founder and CEO of FundApps; a regulatory technology company founded exactly 10 years ago, so happy birthday Andrew and FunApps. He completely bootstrapped FundApps and grew it from a small startup to over 60 people and 9 trillion US dollar in monitored client assets. The company provides shareholder disclosure software to hedge funds, sovereign wealth funds and other asset owners and asset managers.
Before founding FundApps, Andrew was a managing director at Aquin Components, a company that was acquired by State Street. We start off our conversation by Andrew walking us through the space of regulation technology, or in short, reg tech. He gives us a history of the space and how the regulation technology industry changed over the last years. We talk about difficulties in adhering to all regulations globally as a hedge fund or asset owner.
This episode shows me again why I love doing this podcast, because we start off in reg tech and then take an unforeseen but interesting turn and Andrew just gives us a masterclass in the art of bootstrapping, meaning getting your startup off the ground without taking external capital. Andrew shares with us tips about focus, culture and much more. If you like this episode, please do leave us a five-star review on Apple Podcast, or whatever you get your podcasts from.
Now without further ado, our interview with Andrew White.
[INTERVIEW][00:02:13] AH: Andrew. Hello to The Wall Street Lab Podcast. I’m excited to have you on the show.
[00:02:18] AW: Thanks very much for having me, Andreas. Very excited to be here.
[00:02:22] AH: Can you tell us what is it that you do? What’s your background?
[00:02:28] AW: In a very high-level overview, FundApps provides compliance as a service to financial institutions, mainly asset managers, hedge funds, etc. Rather than they themselves having to either code software, or to write Excel macros, they send us the data to FundApps and we will then process the data with whatever regulations they want to ensure they’re upholding and then we’ll tell them if they’re breaching any rules, or if they need to make any disclosures to regulators across the globe. In a nutshell, outsourced compliance.
[00:02:59] AH: You are the founder and current CEO of the company, right? When did you start the company and how did you come up with the idea for it?
[00:03:08] AW: Current Founder, CEO. Founded in September 2010. We’re coming up to our 10th birthday. Happy birthday to us in lockdown. A very simple background the company, which I think most companies that do have a fairly resounding motto, they’ve done this before, or they’ve had experience in solving the problem. Very simply, I was working for a German software company based in Frankfurt. We solved compliance for our customers back then, but the biggest problem was that it was on-premise software. The rules had to be coded by the client themselves. Basically, we would sell a rules engine, but the client would then have to then code all the regulations, stay up to date with the regulations. I thought to myself, “Well, this cloud is coming, or the modern technology is coming back in 2010 if I was able to put the software on the cloud, then I could also hire a team of compliance and legal experts that could then code the regulations.” The customers could then use the service, rather than do everything themselves.
It’s a very old Marshall in SaaS, but if you want a glass of milk you don’t buy a cow. This was the old way was you had to buy the cow in the farm, where’s the modern way is I want the service, I just want the glass of milk. I thought, okay, FundApps could just provide the compliance service rather than the software.
[00:04:19] AH: You’ve basically been what nowadays is called a new trend of reg tech, regulation technology. Can you give us a brief history, or maybe start with what is regulation technology? How would you define it in a very broad sense? Then how did it developed over time?
[00:04:42] AW: I think reg tech in the current sense, the majority sense is to do it financial regulation. There might be some reg techs that do regulation to do with farm, or a biotechnology. For the majority, it is to do a financial regulation. I think most importantly, it came after while the current wave of fintech. If you think, fintech’s been around for a while. Theoretically, all the software vendors that have provided software to banks over the years, the current wave of fintech maybe since 2010. Fintech was a lot of B to C things, like TransferWise, or Monzo, or any of the consumer financial stuff that was relatively easy to implement.
Whereas, reg tech obviously isn’t what it says in the tea and it is solving regulatory problems via technology for clients. Took a lot longer to start, because basically you needed a lot of experience in the industry. Certainly, you didn’t leave college and understand how financial regulation worked. Whereas, you might understand that transferring money from Poland to England work, so you might understand how a current account works. Reg tech required a little bit more expertise. Generally, a smaller sub-section of fintech at the moment, well I would say growing, because over the last few years that the amount of regulation and the complexity of regulation has increased.
Previously, if you looked at a job board for asset managers and maybe 50% or 60% we’re looking for front office traders and brokers and so on, whereas that’s flips now and that the majority of jobs, or back office compliance regulation, that thing. Regulation is a massive, massive cost for all these institutions. It’s becoming more and more important. Obviously, the regulators are finding more and more people. It’s really important that these people make sure they’re not breaching any regulations. It’s generally gone from a small segment to growing and growing. I would say now, equally to be fintechs, there’s quite a large section of reg techs, but maybe not as well-known as the fintechs.
[00:06:34] AH: Would you say it also came with a change of mindset? Because I think that banks are very, very sensitive when it comes to their compliance, their regulation and they often want to have their hand on it. What do you think made them change their mind to outsource this very important part after technology? Because how can they be sure that you are doing it right? Or can they then say, “Okay. Hey, it was FundApps. It’s their fault. I’m just going to put them in the street and let them talk to the regulators.”
[00:07:10] AW: Yeah. That’s a fun one. I mean, I think you’re right. It’s super important to get right, not only financially for getting penalties, but also your reputation. Obviously, if you see the likes of Blackrock, or some of the big asset manager is getting fined by regulators, they might be able to afford the fine, but it doesn’t look good for them.
The real two main reasons that reg tech became that important was just the volume of regulations. A simple example in Europe, there’s a framework for mutual fund compliance. Every mutual fund in Europe has a set of rules that the fund must comply with. It’s called UCITS. UCITS won the very first version, came out in the 80s. UCITS 2, they skipped it. UCITS 3 came out in the late 90s. Then UCITS 4 and UCITS 5 have come out in the last few years. The velocity of change has just increased and things were perhaps if something only changed every five years, you could do that in-house. You could gain it to get a team together to make the new regulation. If the regulation is changing every year, every six months, then banks aren’t very good at agile. As we know, the ability to put a team together to fix this or to make this new regulation work, or to fix it to make it work with the newest requirements of the regulator, they’ve got a waterfall big project plan, implement, test, works go live.
In this day and age, basically, regulation is changing every couple of days, every couple of weeks. Unless they have a full-time team doing it, they’re unable to meet the regulation. The second is the complexity. The usual thing with the modern world is far more complex than the old worlds, maybe 10, 15 years ago, the calculation was A plus B, divided by C. Now that is a big algorithm, isn’t doable in Excel. The original version that was written by some guy 20 years ago no longer works.
Basically, the speed of change, but also the complexity of the current requirements and data volume, things like [inaudible 00:08:55] requires so much more data than [inaudible 00:08:58]. Perfect storm, increasing volume, increasing frequency, increasing fines. Then as I said, that the complexity of it all is a lot more than it used to be. Led people to look for solutions and then why companies like us so far have been successful is obviously, focus. This is all we do. Bank has 10,000 things to do. Some other software vendors do 50 things, but we just do this one or two things very well. It’s a lot easier for us to do this and do it correctly than it is for a bank to do this with four or five people on a regular basis.
It’s just this thing of focusing that we all know nowadays, that if you’re very good at one thing, you become best of breed, as they say. Then if somebody’s looking for shareholding disclosure, they Google, they’ll find us and we have obviously 75 clients now. It becomes a very clear strength in numbers. The more clients we have on the platform, the more confidence future prospects we’ll have that this works, because 75 other institutions are using it.
[00:09:55] AH: It gets a bit of a commodity. If you have enough people on the same platform, they’re like, okay. This is this bank started using the platform. They must have checked it. Let me just check it again. Then the third says, “Okay, I’ll check it, but not that in detail anymore and so on and so on.” From the 10 years in your history, who were the first institutions that were like, “Okay. I need this technology”? Then, where do you see your new clients coming up now?
[00:10:28] AW: That’s been very interesting. Our very first client was a smallish hedge fund in London. Our second client was a little bit smaller hedge fund in London. We started off with smaller institutions that were able to – well they had maybe a higher risk profile. There wasn’t this management committee and steering committee decisions. [Inaudible 00:10:46] say in German. There was just a very clear, we have this problem, these guys provide a solution. Yes, they’re small and young, but we’ve checked it out, it looks like it works.
Then as you said, those customer 3 was a slightly larger asset manager in the Netherlands and customer 4 was in investment banks. Basically as we got more clients onboard, we were more acceptable to larger and larger clients. This day, our clients range from 200 million dollar hedge funds in New York to 500 billion dollar asset managers in the UK to 1 trillion dollar sovereign wealth funds are basically the massive large institutions that do need longer to decide and that’s also, I think is an important thing about if you’re selling on how to set up a company then obviously, you want to go for the people that can make a decision quickly. Because if you’re not getting any cash and you’ve got a sales cycle that takes a year or two years, then that’s going to be a lot of time before you see the money.
For us, it was clearly going after the smaller to mid-size institutions that could make decisions more quickly. Then while we were doing those, starting to talk to the bigger institutions and bigger institutions. They would then take their year or two years to make a decision.
[00:11:53] AH: Your tag group are asset owners that owned the assets and not banks themselves, because they probably have other, or different compliance issues?
[00:12:03] AW: Asset owners and asset managers, anybody who is managing the equities for somebody else, or anybody who owns them themselves. We do have a very large spectrum of clients and we do have some very large investment banks in France and Germany and Canada. The majority of our clients are asset managers and hedge fund are the asset managers themselves, but we do see more and more asset owners.
[00:12:24] AH: What type of hedge funds do use your services? Why do you think that is? Is this high-frequency trading hedge funds, or is it more the macroeconomic hedge funds?
[00:12:40] AW: That’s quite diverse. Our ideal customer is somebody who manages a lot of money that’s quite simple and shareholding disclosure. The more AUM, the more assets you have, the more likely you are to disclose. If you’ve only got 10 pounds in Microsoft shares, you’re never going to have to disclose that ownership, but if you got a trillion or 500 billion, it’s very likely.
The second factor is as you said, high frequency. If you only trade every six months, it’s quite clear there probably won’t be many disclosure requirements until you trade again. It’s the large volume, or large AUM, high-frequency traders. Also, the jurisdictional composition, so if you’re only trading German equities, you probably know how to do Germany. For us, we find the clients that trading in 60, 70, even 80 countries every day. They’re shorting stocks in Israel, they’re longing stocks in Uruguay, etc. That geographical macro outlook is one of the biggest factors in deciding to use us, because as I said, to remain up to date with how to disclose in 95 countries on a daily basis is really, really difficult.
Those hedge funds, yeah, equity-based mainly. We do have a commodities product as well for position limits for CFTC limits, but the majority of equity-based, large AUMs. If they short sell a lot very relevant to us, because the short selling limits are a lot lower than the long limits. Typically in Europe if you’ve got more than 3% of the shares outstanding, there’ll be a major threshold, but for short it’s about 0.2. You could have a small fraction of your position short and you would need to disclose a long time before long ownership.
[00:14:10] AH: Can you tell us what exactly is shareholder disclosures? What do I have to picture with that?
[00:14:19] AW: It’s a really simple concept. I don’t know how we’ve been doing it for 10 years and employee, 65 people to do it, but that shows how complicated it is. Very, very simplified version is you as an asset manager need to aggregate all your positions with a certain company together. Let’s say you’re at DWS and Frankfurt, you have a 1,000 funds, each of those funds holds a 1,000 Facebook shares. You need to add those up, together you’ve got, let’s say, a 100,000 Facebook shares, divide that by the total shares that Facebook has globally, which is a couple of billion and that’s your current ownership level of Facebook, let’s say 1%, 2%, 5%, etc.
The reason it’s important and regulators and companies care about it is obviously, they want to know when an investor has suddenly gained 3%, 5%, 10 % ownership of their company. The companies couldn’t enforce that themselves. That’s why we need regulation to do it. Every country basically, as I said, 95 countries currently has some regulation around as soon as you go over a specific threshold, 1%, 3%, 5%, you need to tell the regulator. It looks at simply as that DWS would need to tell the America – the SEC, because it’s an American stock, American company.
We’ve gone over 5% ownership of Facebook. They’d have to make a disclosure as we call it to. The SEC is saying, “Hey, yesterday we had 4.9% to Facebook. Today, we own 5.1%. We’ve gone across the 5% threshold and we have to disclose that.” The fun part about this is the percentages are different in every country on the planet. Some countries, there’s 1%, some countries it’s 2%, some it’s 1%, 2%, 3%, 4%, 5%, 6%, all the way up, some countries 5%, 10%, 15%. How you calculate that is different. Some countries care about the shares and treasury, some care about voting control, maybe there’s different share classes and they don’t care if the share class has no voting control. It’s about how many votes you exercise.
Is that every country can decide how to do the calculation, how to define the algorithm. What we do is then per country model, the algorithm, the percentage is the calculation, how to do the denominator in the numerator, and then obviously our clients then send us their data on a daily basis and we just compare what you own today versus what did you own yesterday and then tell the client if they need to disclose the regulator.
[00:16:29] AH: Why do the regulators want to know? It seems always to be around as 5%. Why do the regulators want to know who owns more than 5% in the company?
[00:16:40] AW: There’s two answers to that. One, is the regulator doesn’t really care, but they needed to make the regulations, the issuer would care. Obviously, Facebook cares who owns 5% of them. A company owner would want to know who owns a large share of FundApps. Basically, transparency. Companies want to know who owns them. If this requirement wasn’t there, then Vanguard and fidelity and Blackrock could get together and buy every share outstanding of a company and then turn up to a board meeting and say, “Hey, between us, we own 91% of this company. You’re all fired, kind of thing.” It’s mainly for the actual companies themselves and why the percentages, as you said, generally 5%.
It’s quite simple that the regulators don’t want every half a percent, or every 0.10 of a percent, so they put it fairly high, so they only get a few disclosures every day or every year. I think at the end of the day, if the regulator was to use electronic technology and it’s something we can talk about that the regulators are actually, should be the end consumers of our service and not the asset managers, because it’s the regulators that want to know this information, that theoretically if they had access to all the data our asset managers have, they would say there are no percentages, but they can log in and see every single day what the current percentage ownerships of each country are in their jurisdictions. The BaFin could log in and see the ownership of all asset managers and companies that are German and they wouldn’t have to require a certain percentage.
[00:18:01] AH: That makes a lot of sense. I’m reminded of the movie Wall Street with Gordon Gekko, where he does this backdoor trades with people trying to take over companies and doing all that, so I guess where this is coming from. I’m curious now, if one of those high-frequency trading hedge funds sends you all their daily trades, or all their position data, are they not concerned that now you’re going to do your own hedge fund as an aggregate of all the other best strategies in town and then get that proprietary technology?
We had Greg Zuckerman on the podcast, who interviewed Jim Simons, the legendary founder of Renaissance Technology. They were so secretive about their code and everything. Would they ever give you their trades?
[00:19:01] AW: Renaissance isn’t a client yet, but we’re working on it. I think there’s a few things there. One, obviously our internal IT and security protocols are very much set up to stop that happening. Obviously, that’s part of our agreement with the client is that we don’t do that. You’re right at the end of the day, it’s a trust/ that they ensure that our information security policies are strong enough that they believe that as you said, we’re not going to do that. I think at the end of the day as well, we don’t have the algorithms that they’re trading on. All we can see is the end-of-day positions, why they have those end-of-day positions is the actual algorithm.
We know you have 10,000 Facebook and yesterday, you had 7,000 Facebook. Why you made those trades is then the black box. Yeah, you’re right. I mean, our biggest impediment to sales is generally the information security and that clients and prospects can trust us. We’re not going to run away with our data, or sell it on the black market, etc.
[00:19:55] AH: You’re only looking at end of day data.
[00:19:59] AW: Generally, yeah.
[00:20:01] AH: Okay. My follow-up question would have been if I am a high-frequency training hedge fund and I have to run every trade through your system, get a green light and then run it back, I’m basically already too many milliseconds behind what I’ve try to achieve.
[00:20:15] AW: Correct. That’s very, very true for our purposes for shareholding disclosure. It’s only an end-of-day task and the regulators are explicit about that, because you can imagine if there are thresholds and you’re at 4.99 of a company at 9 a.m. and then you buy some shares you’re at 5, and then you go sell them, you have to disclose again. The regulator might get 10 disclosures a day, but they’re like, “We don’t care about intraday, just end of day.”
There are some regulations, the UCITS regulations, for example, that do require you to do pre-trade checking, which does have a lot of problems with high-frequency trading, because as you said generally, it just wouldn’t be fast enough to check on a real-time basis.
[00:20:50] AH: A fund manager would also be checking out, in which jurisdiction can I actually do high-frequency trading and where do I have too many pre-trade checks to actually have my strategy.
[00:21:01] AW: Yeah. A general mutual fund in Europe, which obviously isn’t going to be HFT has to do pre-trade checking for usage purposes, so they would make sure that every single proposed trade had to go through a compliance engine. Simple checks, like for example in UCITS, you can’t buy gold, you can’t buy commodities, you can only own more than – less than 10% of one company. If you’ve got a portfolio of a 100 million, you can invest maximum of 10 million in one company. That all has to be done on a pre-trade basis, which again is sometimes a bit pointless, because at the time you might only have 9.9%, but during the day the percentage, or the price of the stock goes up, so that at the end of the day you’re actually over the limits. Pre-trade and post-trade are both very important in mutual fund compliance, but pre-trade still requires a lot of work to make it that speedy, that HFT could use it.
[00:21:49] AH: Let’s circle back to what you said earlier. When you said that actually, the regulator should use your technology. How would this vision look like and why are they not doing it nowadays?
[00:22:05] AW: Here’s the funny one that hopefully your listeners will appreciate. As I said, our users are the asset managers. They discover they need to make a disclosure. They need to tell the BaFin, or the FCA, or the SEC, our system will currently generate about a 150 different rules that required documentation. For example in Germany, that’s an XML file. In the UK, that’s an Excel sheet. In the USA, it’s a text file. Basically, the client then has to e-mail that file to the regulator. Even worse, or sometimes on a rule-by-rule base as I said, some countries have long limits and short limits. The long threshold is 3%, the short threshold is 0.2%.
For example, in the in the UK, the FCA requires the long disclosure to be made in a Word document, sent to one e-mail address, but the short disclosure needs to be made in an Excel sheet, sent to a different e-mail address. Basically, our clients are on a daily basis sending a 150, 200 different documents to 200 different e-mail addresses. Each of those documents looks nothing like the others. Some of them are as I said, tabular, some are formatted nicely, some are XML, which is great because it’s structured. Then if you think about what the regulator is doing on the other side is they obviously have some junior hopefully who’s in the e-mail inbox, saving every disclosure to a drive somewhere, or putting it on a stored network drive.
Hopefully, they do something with the papers, or that the documents, maybe copying and pasting them into a certain database. We have to presume that not every regulator can do that. There’s probably a large chance that these documents are just being saved and not looked at. As a very long story short, we truly believe that this disclosure is important. There’s a reason there’s a regulation there. The current method of asset managers sending their disclosure information to a regulator via e-mail in a document is just really pointless. We’d love to see electronic filing, API filing that the asset manager can just send the information that’s required by the regulator via API. At the end of the day if there’s an API, then we could also be that platform that there’s a read-only section, where the right section where the asset manager generates the disclosure, or the information and then there’s a read-only place that the regulator could log in and see all the disclosures in their jurisdiction.
It’s something where we’re talking to regulators about. As you said, it’s not easy to persuade them, because obviously they’re not the most technology savvy companies. It’s hard for regulator to hire lots of techies to build this. We’re trying to talk to them and mention structured data and how they could take XMLs, or APIs, rather than accepting PDFs.
[00:24:36] AH: A curious thing that I was pondering about while I was preparing for this episode is you talk to so many different regulators, probably all around the world. Now with what you just said, is there a bias? Are any regulators more tech savvy than others? Background is I lived two years in Singapore and I always had from talking to banks there, I always had the feeling that the regulator is really up to date, compared to countries like Germany, where they are not often so deep in the weeds. As for example, in Singapore. Do you see any trends, or any obvious differences in the advancement of the regulations?
[00:25:23] AW: Absolutely. 100%. You’ve named the MAS in Singapore as one of the most forward-looking one. As an example, we do currently support API filing, so those most sophisticated regulators that have an API in a structured format. Currently, the most unsophisticated, no names mentioned, but it is a eastern European regulator, where they still require facts to be sent.
Actually, some far east regulators as well still require letters to be sent. There was a very interesting a regulation update two weeks ago from one of these regulators that said, for the period of COVID-19, it was acceptable to send e-mail, rather than send a letter. Well, this was just for COVID. They were going to reverse back to letters after COVID. Long story short, there is everything from API, to fax, to letters.
You mentioned BaFin in Germany. Actually, they are one of the most advanced, that they are one of the few that accepts API filings and XML filings, rather than documents. It is generally to do with size of the marketplace. The UK, the FCA is also a very advanced regulator, as is the BaFin, as is the mass. The ASIC in Australia is quite advanced too. They allow electronic filing of CSV files, rather than Excel sheets, etc.
It really depends on the size of the jurisdiction and how much the country obviously invests in the regulator, because it has to be funded by the government. The SEC in the US is a bit behind the times. They still publish information in PDFs and require things to be sent in HTML and stuff like that, but again, a very big regulator that probably has a lot of legacy that needs to be changed over the years.
You do see some of the larger European ones and some of the smaller ones that have maybe less legacy to deal with, like the Baltics, etc., that have jumped the shark and gone straight to API filing, or straight to more structured data, rather than PDFs and faxes.
[00:27:09] AH: If I want to hire your company to do some filings in the far east and you have to have a stamp postage increase on the monthly license, that’s –
[00:27:21] AW: Well, exactly. If we were to do the perfect service, then I guess there would be a please lick the stamp for me button and then somebody in FundApps would then obviously have to print out the letter, put it in an envelope and send it off for the client. Currently, they have to do it themselves.
[00:27:34] AH: Okay. This is something you’re like, “Okay, this is just –” It’s not that scalable as a company.
[00:27:39] AW: Not that scalable. We’ll create a Word document for you, but it’s up to you to print it out and send it. Yeah.
[00:27:44] AH: Okay. Good times. We know where the next market opportunity for anybody that wants to be in these sending letters to the regulator’s business. That’s really interesting. Talking about trends, what do you see in the next five to 10 years in the market? Where are things going?
[00:28:05] AW: I think we’ve just literally started talking about it. I think that’s the automation is step one and I’m very glad that all our clients and prospects have seen that automation is the way to go. Five, seven years ago it was still hire lots of graduates, put them in front of Excel sheets. If you’ve got more data, then hire more graduates. Clients associates we have to type in macros and run things manually, etc.
Fortunately and hopefully, fortunately out of COVID that people have realized that manual solutions and especially those solutions that are tied to you being in the office and we do have a few prospects that literally had Excel sheets that needed to be run manually and either they don’t work via VPN, or it doesn’t work as well as it does in the office, that you see a lot of worst case scenarios, either somebody got sick, or the file couldn’t be run. We see that automation is the acknowledgement that automation is the only way forward is the first step.
Doing something manually, or using people to run macros, or to manually do stuff in spreadsheets is not a long-term solution as these companies grow and we’re – as I said, we’re seeing that slowly but surely. Our 75 clients have obviously seen the light early and realized that automation is the answer. The second is obviously then, how do you increase that automation? We say in a sales demo that we bring you 95%, 97%, 98% of the way there. We will do the calculations, we will tell you you need to disclose, we will create the document that you need to send, we’ll even pop open an e-mail that you need to then click send on. At the end of the day, that the full automation for our clients and particularly to FundApps is literally that they get an Alexa message, or a Siri message saying, “Good morning, Andreas. I’ve made 37 filings for you today. You don’t need to go to work today.” That is true automation.
In a lot of areas of the world, that would work. We can make self-driving cars. Why do we still need humans to click buttons to make these disclosures? A lot of that is data quality. Can you trust the data? Garbage in, garbage out. A lot of our users still have to check the data and make sure it’s okay and we’re helping them with that. We’ve got a lot of new features to do with verifying the data is correct, or pointing out to users that this data might be wrong.
The second is then as I said, automating the full disclosure process. We can send the data that the regulator requires straight from our system to the regulator, get acknowledgement from the regulator that they’ve seen it, it goes back into our systems. Hopefully, your job is reduced to just reviewing that the job has been done for today. It’s just automation and then getting towards a 100% automation. A lot of industries is the case, a lot of industries that have been using technology for longer, it’s normal that everything is automated, that humans don’t have to do anything.
[00:30:40] AH: I want to switch gears a bit and talk more about the entrepreneurial side. You’ve been founding FundApps 10 years ago. You are still the CEO. You’re still growing pretty rapidly and you’ve entirely bootstrapped. For listeners, bootstrapping means you haven’t taken no external capital. How do you think you could achieve that? Nowadays it’s all about VC, getting to San Francisco, going to Silicon Valley, get the biggest VC you can find on your board and have them give you 10 million Euros and then you just go out and try to find clients with burn rate that’s just insane. You’re the exception there. Why did you decide to do that and why did you think you pulled it off?
[00:31:33] AW: Lovely questions. I hope I have a good answer. I think the good thing about B2B is that generally, it’s very sticky. You get a financial institution, a bank, an asset manager using you. Unless you screw up really badly, or your system is terrible, or it doesn’t do what it says, there’s really no reason they would leave you, unless a competitor comes out and is 50% cheaper, a 100% cheaper. Even then, they’d have to make a big decision.
If you can get into an institution, your revenue is fairly secure, even in times like these. I think the B2B model can be very nice for young companies, because as I said, A, you’re selling to institutions that generally have more money than consumer, rather than selling something at £3, or $99.99, you’re selling something with a 5 or 6 digits price tag. For us, it was very simple. We built a product, so I think myself having a few gray hairs, having spent my five years in Frankfurt, etc., building experience, I had a very clear idea of what I wanted to do.
It was very much the product market fish was there from day one. That sounds a bit cocky, but it’s not B2C or other areas of B2B, where you’re not sure if there’s a market. This is reg tech. This is a regulation. This needs to be done. There isn’t an option for the asset manager to do it or not do it. They have to do it. Basically, if we talk to an asset manager, we knew they were either doing this currently, or we’re doing it well, or we’re doing it badly.
I think regulation, reg tech is a fantastic area, because you know everybody has the problem and you knew what the solution was, or believed it was. I think the issues were then cloud and for a big financial institution to trust a smaller young company. Then it was very much a snowball effect of okay, first client signed, you’ve got a £100,000 in the bank, I can hire one or two or three people, you build some more software, your burn rate is still above zero, so you’re making money. Then when client two comes along, you make more money, etc.
For us, it was just very old school, fiscal prudency. You don’t spend more money than you have. You keep building on the product, even when you’ve got no client signing. It’s a nine and a half years. Somebody says nine and a half years overnight success, but it is a longer play. Sure if we’d have taken 10 million from day one and hired 50 developers and built the software, we might be where we are now or further, but there’s a lot of risks involved in that. You risk building the wrong thing, you risk throwing money at stupid problems. If you just said, “Hey, let’s investigate this idea. Let’s take 2 million and spend on it.”
You do a lot of stuff that perhaps you know in your heart aren’t the best of ideas. I think it encourages a certain discipline in the product process and the sales process that you know what you have, you know what it does well and you just focus on that and that’s something for me isn’t very important for entrepreneurs to focus on one thing. The Facebooks and the Twitters and all these guys, even though they do a lot of things now when they started off it was very clear, this does one thing, it connects friends, or lets you tweet. It’s the companies that try and do too many things at once that fail.
For me, focus and a little bit of shall we say, a lot patience and knowing that in the long term it’ll work out, mind with a B2B play where once you win a customer, it’s there for many years to come. It is a very nice way to build a company. Obviously as you said, we’ve got great Glassdoor reviews, etc., that we can create a culture that isn’t around hire, hire, hire, fire, fire. It’s about building up a culture over years, that people enjoy working here and that they know what we’re building and why and it’s not about just ramp it up and sell it off and then buy Ferraris, etc.
[00:34:59] AH: How do you create a good culture?
[00:35:04] AW: I think, going back to what I said, having clear company values about why you do things. I think, going back to money and the root of all evil, I think if you were to VC, onboard for example, and it’s let’s say, December and you’re £300,000 behind target. A prospect comes along and says, “Hey, we would like you to make us a toothpaste widget.” You’re like, “Well, we don’t do toothpaste. We do shareholding disclosure.” They’re like, “Well, yeah. Sure. But it’s $300,000.”
If you’re a VC-backed company, you’re probably going to make that call because you have to hit target, because blah, blah, blah, so many other things are dependent on your revenue numbers that you would make that decision. There’s no reason why as shareholding disclosure should make toothpaste, or use a different metaphor. For a lot of short-term gains, bad long-term decisions are made. Obviously, if we decided to chase every revenue opportunity over the years just to hit certain numbers, arbitrary numbers that a VC had given us, we would have built a lot of shits offer over the year and we would have built a lot of things that only one customer wanted.
The usual thing, a product company should build something that all the customers want, not just one customer wants. Again, that’s what I see a lot of companies do badly and that creates friction in the company. Imagine you’ve got developers working on something that’s really cool and fun and then you say, “Hey, all developers stop. We’re building this toothpaste widget now.” They’re like, “What? Toothpaste? Why are you making this decision? I thought we were building shareholding disclosure.” You’re like, “Yeah, yeah. But we’ll do this and then we’ll go back to that, because we need to make some money.”
Long story short, a lot of bad long-term decisions are made for short-term gain that I was able to say no to, because we weren’t bootstrapped. If we failed to hit our sales number, I felt bad, the sales team felt bad. But at the end of the day, nobody was fired and it was okay, because we consciously made the decision that we don’t want this revenue, because it’s bad revenue and that’s something that’s very clear. There is such thing as bad revenue.
[00:36:53] AH: How did you stay away from it? I feel like on the one hand, I totally get your argument if you have a VC and the VC gives you a number and only then you maybe even get your salary or your bonus for the year as a founder, CEO whatever. On the other side, if you’re a bootstrap you’re like, “Well, I don’t have another 10 million that I can burn through. I need this revenue. I need this toothpaste revenue. Otherwise, I don’t know when my next client is going to come.” How did you manage to stay on track? How did you focus? Did you have a big sign on your walls like, “Don’t do bad revenue”? Or what kept you focused?
[00:37:28] AW: It was more simple than that. I mean, they’re not making bad decisions was always down to – or about revenue decisions down to me. I think that said, that the main one was always never burning cash. As I said, client one brought us X thousand pounds of revenue and our spend was X thousand minus 5. Every time we saw in the client, we hired or we invested, but it was always below. It’s our revenue always went up more than our cost went up.
We were never in a scenario and of course, the very early days up until 2012, so for about two years, I obviously didn’t pay myself a salary. I just moved in with friends and family and self-served and whatever and ate lots of cheap foods. Until the company was generating revenue, I didn’t take a salary, etc. Then the first customer as I said, brought us more revenue than the first developer salary. That always meant that we didn’t have to make uncomfortable decisions.
If we ever did make a decision, it was purely because our aspiration was to grow and to be bigger. But at the end of the day, it was never that if we don’t make this sale, or we don’t get this revenue, then we wouldn’t have to fire somebody, or we’re going to have to do something else. Again, back to normal, old school business the way may have thousands of years works that you don’t spend more money than you have, unless you take a loan and then it should be short-term to do something particular. In that respect, it gave us a fairly easy decision that we were able to always say no to revenue, just because we were still making a profit, even if a very, very small profit.
[00:38:55] AH: As there’s so much literature on how to get VC money and then how to blitz – I mean, there’s great books. Don’t get me wrong, like Zero to One. There’s great books. Do you have any tips on people that want to maybe bootstrap their own company? Any literature, any resources that you can recommend?
[00:39:14] AW: You’re absolutely right. It’s strange that an industry that makes profit off making people take VC funding, there’s lots of books, but where nobody profits like bootstrapping, there’s very few books. That’s exactly the problem as well. Obviously, VCs spread the gospel of you need VC money to do well and every good company has taken VC funding, but there are lots and lots of counter examples. Those that maybe didn’t do it the normal way that took later round of funding, or used it to buy out old founders, or to take secondary funding.
My favorite example is Basecamp, the American productivity platform. I think they had a small investment from Jeff Bezos personally early on, but since then have taken no funding. They’ve got an amazing culture. They’re the guys that wrote the book Remote. Lots of other books on how it doesn’t have to be crazy at work and stuff like that. They have four-day work weeks and summer, those profit sharing schemes. It’s just built to last the company. I think that’s the big difference between bootstrap and VC. A bootstrap, nobody expects to exit in a year or two and retire, whereas VC, I think there’s still this mindset of as you said, blitz scale, make loads of money, exit, do something else or whatever.
To those that are maybe contemplating doing something, I think we all agree, there’s many philosophers and on travel writers that always say that it’s not about the destination, it’s about the journey. Sure, to make lots of money is fantastic. But if you don’t enjoy doing it, or you have to make a lot of horrible decisions along the way, or do lots of stuff that’s against your character, your moral fiber, then maybe it’s better to do it at the slower way, where you could make good decisions and long-term decisions and treat your workforce well. Then hopefully, still someday, either have an exit, or just lifestyle business.
That’s a funny thing that the word lifestyle business has always taken to be a really bad thing in Silicon Valley. That’s the worst thing you can do. We’ve got one life to live as well. You got to decide what you want to do. If that’s serial entrepreneur and do 10 startups in your life, then probably you need to do VC. If you do want to do two or three startups, then you’ve probably got enough time to bootstrap. I’d say for those looking, look at the books from Basecamp authors on bootstrapping and Googlers. As I said, it’s not a industry. It’s just people that have done it successfully.
[00:41:25] AH: It sounds very in the fort of greater good. I found actually on your LinkedIn that you did something, like founder’s pledge. Could you tell us if you feel comfortable, what it is and why you did it?
[00:41:38] AW: Yeah, absolutely. I mean, without getting too deep here, because it’s a show about fintech and reg tech. I truly believe that one of the worst problems in modern society is that companies have no moral fiber. People that work in the company are humans with feelings and morals, but the company itself doesn’t need to have any. A company is just a profit-making vehicle. You can burn down the Amazon, you can chop down the rainforest, you can emit CO2, you can have oil spills and whatever, because the company’s making a profit.
I think that 90% of employees don’t believe that, but somehow companies manage to get away with that. There’s two things here. One is as a company, FundApps is a B Corp, B Corp or simply a company that believes – or has agreed that there’s something other than profitability and shareholder value. It means giving back to your workforce, giving back to the community, environmental, just basically making sure you’re a sustainable company. You’re not using minimum wage labor, you’re not abusing young workers in Asia, or paying people below market and of course, that you’re not polluting the environment. That was the first step. FundApps became a B Corp about three years ago and it’s something I truly believe in, because as I said, I think everybody nowadays is looking for a higher purpose and not just making profit on whatever. We want to see that the world is a better place after we leave it. That’s the B Corp.
The founder’s pledge is something very similar that I believe, as hopefully my success with FundApps should be greater good than just making the shareholders more wealthy. It is that I’ve pledged to give a certain percentage of the exit value to charity. It’s a good system, because you can start with as little as 2%, which you can only increase it over the years. Every year, you go 2%, 3%, 4%, 5% and it can never go down again. Basically, you give that percentage of your proceeds out of an exit back to a charity.
It’s very simple for you to sign up to. It’s a one-page document and it was something I did early on FundApps. I didn’t have to think about it. Now obviously, as the company’s more valuable, it’s going to mean a greater amount to the eventual charities and as I said, for me to manually look for charities out there and decide which ones to pledge to and so on, be quite tricky and take up a lot of my time. Whereas this way, it was just a simple document that I have to sign.
[00:43:41] AH: I love it. It’s really inspiring. I want to use the last couple of minutes to get some career advice from you, because another very interesting thing that I’ve actually never seen before on any LinkedIn profile was that you were very open about your travel DST. Took two, let’s call them gap years. You just put them out there. Why did you decide to do that? Do you think it hindered you in any way when doing things, or as many of our listeners are graduates, young professionals, should they be vocal about it, because makes them more interesting, or more open-minded? Or would you actually, as a CEO, somebody that’s hiring be like, “Well, don’t you have anything productive to do?”
[00:44:29] AW: There’s a lot of questions there to unpack. I certainly think that travel is one of the best and quickest way to broaden the mind. I think if you’ve stayed in your hometown all your life and never left it, you’re probably going to have fairly, I won’t say narrow-minded, but haven’t seen certain things. For me, I first a year-long travel in 2003. For me, the first dawning and first mind-blowing thing, which to this day stood with me was I’d been living in Frankfurt, I was on a six-figure salary, I had a penthouse apartment in Frankfurt, happy days. By all intents and purposes for most graduates, I was living the life, tick box, tick box, tick box, but I was unhappy.
I’d be in a relationship. I broken up. I didn’t enjoy my job. There was lots of stuff going on. As I said, so I had a full fridge and a beer, cellar and wine cellar, etc., and I was unhappy. Then I got on the plane, I was in Thailand for a few weeks and then I went to Cambodia. I remember being in Cambodia and I was on a boat somewhere in the middle of nowhere and I saw a few kids playing by the side of the river. I’ve never seen such happy kids in my life, not in Frankfurt, not in London. They were smiling. They were waving and they were playing with a bookish. I was 30 years of age at the time. My perception of wealth and happiness suddenly fell apart, because I realized that money, these kids were happier than any kid I’ve seen in a long time and they didn’t have for Western purposes, any money, but they were very, very happy. They had time. The grandparents were there in the banks of the river with them, spending time with them, their parents, etc., etc.
That’s when things started to unravel for me, or ravel, depending on how you see it. I decided, “Okay. Wow. Maybe how I saw life wasn’t the way it probably actually is.” Henceforth, travel for me is always that just seeing how other people lived, how you can be happy without a Mercedes, or without a big apartment, or whatever. I think over the years, I’ve realized and maybe it’s not what you see when you’re travelling, but talking to different people and meeting other cultures and talking to people, getting different viewpoints and something for FundApps is very important is diversity.
We’re not looking for MIT, or Stanford, or Oxford students. We want people with no college backgrounds, college backgrounds, older, younger, male, female, because at the end of the day, diversity of thought is what makes good solutions. If everybody thinks the same way, you’ll make the same mistakes. Long story short, I believe travel is very, very important. I also want to show that you shouldn’t be embarrassed about putting it on LinkedIn. I think going back to the twice that I’ve done it, the first time I did it, I was hired back by the VCs of my old company into an even better job to sell the company.
Actually, the travel for a year paid off in a few weeks and I had an even better job. I’ll use the word ‘better’ in apostrophes. I went on to be successful. Likewise when I came back from my last long trip of the year, I went on to set up FundApps, because I realized over the year that I didn’t really want to work for another company again. I decided to settle.
If there’s any nugget of truth, I believe you should go out there and do it. I think we’re all going to retire later and later in life. Might have been 65 at some stage, is probably going to be 70 soon and 75. We’re all going to live longer, so you’ve got a very long career. Unless you plan to start a startup and get VC funding and retire a multi-millionaire. The vast majority of us, we won’t. You’ve got a long career ahead of you. Work out what you want to do. I think people should give things a little more time. I think the modern society is very transitory and change and do different stuff and that’s fine if you really hate what you’re doing, but sometimes you have to work at something for a while to really understand, “Do I like this? Do I enjoy it?” Because in many complex areas, you can’t get an understanding of what you’re doing in six months or a year. You need to work at it.
I think you got a lot of years in your career. Try something out. If you don’t enjoy it, try something else. Do a bit of travel if you’ve got the savings to do it. It’s up to you. You’ve got one life to live. I think as I said, I don’t want people to end up the medical and career racehorse that races and races and then realizes they don’t want to be racing anymore. Find out what you enjoy doing. Obviously, it’s weird times now with COVID and stuff and getting a job is important.
Plus, save your money. Don’t spend it all. Be fiscally prudent. Have some savings, that if you do decide I want to travel for whether three months, or six months, or even two weeks, that you can do it and you’re not indebted to your job to have to stay there, which we don’t want to be. If there’s any takeaway, yeah, I think go out there and travel and don’t worry too much about your resume, because there are CEOs like me that will look fondly upon it. Of course, there are other CEOs that might look fondly upon it.
I think if you have traveled and it hasn’t just being getting drunk in Sydney, or doing whatever, that you’ve got something to show forth and you can explain what you learned, or how you’ve changed, then it’s always a positive thing.
[00:48:56] AH: I really hope that inspires people to not only look at their professional CV, but only their life CV. I honestly, I have this exact same experience. I’ve traveled a lot in my years when I was studied in Asia. It really made me a better person, I would believe. I fully agree. I’m already inspired. I will definitely put my travels into my LinkedIn profile after we hang up. I think Andrew, that’s been fantastic. I started talking about reg tech and now I got a masterclass in bootstrapping and amazing career advice. Andrew, do you have any last words that you want to share with our audience? Anything that we didn’t cover yet in this amazing conversation?
[00:49:44] AW: Yeah. It has been wide-ranging as you said, from deepest, darkest regulatory technology through to the purpose of a company in the 21st century, through to your personal career plan and it’s not just working. We’ve got to the most important parts of it. You’ve got one life to live. You should do something you enjoy. I think too many people stick with – especially in Germany. I know the culture quite well. Sticking with a job, because it’s got a good Deutsche Bank, or it’s got a good label, or your parents feel good about it. Those days are ending. The banks aren’t secure employers anymore. You need to find something you enjoy doing and give it your best shot. That could mean bootstrapping your own company. It could mean working for a startup. It could mean working for a bank for a few years, because to be honest, if people have worked for a bank, they learn a lot, whether that’s stuff that they don’t want to do again, or do want to do again.
Be more intent to experiment with things. Don’t be too worried. Life works out. Here I am, age 40 something, a CEO and Founder. I couldn’t get a job when I left university, because the market wasn’t great. Have patience. Things will work out for you.
[00:50:42] AH: Perfect. This is what I love about this podcast, exactly those conversation, starting reg tech, ending amazing life advice. I think this is a good place to end this. I look forward to stay in touch, to have another conversation. Andrew, thank you so much again. In my name and in the name of our listeners and all the best.
[00:51:03] AW: Thank you very much, Andreas.
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