The financial services industry has long been a leader and early adopter of emerging technologies. The recent credit crisis has only accelerated the drive for financial innovation, with pioneering startups causing continued disruption to the financial industry. To learn more about financial tech startups, Venture Hype went directly to David R. Strachan, founder and senior managing director of DRS Advisors LLC — a research-driven investment bank specialized in emerging financial technology.
Strachan was the creator of alt.capital, a publication focused on current developments in global finance and national security. He was the lead researcher for the Directory of Browser-Based Investor Research, which was published in the 1998 Online Investing Sourcebook. Strachan also spearheaded the research and development of several financial instruments and technologies, including Sponsored Nonprofit Offering Warrants (SNOWs), Interest Sharing Notes (ISNs), and RiskBuilder — a personal financial stress testing application.
* Edited interview
VH: What does DRS Advisors do?
DS: DRS Advisors is a research-driven investment banking boutique providing strategic advice to financial tech startups. We also share insights and deal flow ideas with financial institutions and strategic investors — angels, VCs, and private equity firms.
For startups and application developers, DRS offers a comprehensive suite of services called Alpha(tm), which delivers the tools they need to fast-track their vision. The tools include: a financial model, a PowerPoint presentation, and a “MiniPitch.” The MiniPitch is made up of an elevator pitch, founder bios, competitive intelligence, product/service profile, and summary financials — all neatly presented in a one-page summary that quickly highlights the key points to prospective investors. AlphaPlus(tm) is an extended version that includes all of the above plus ongoing advice.
For strategic investors and financial institutions, we provide access to original industry research and high quality deal flow ideas. We are, in effect, an investment banking think tank. Quite simply, we enhance the intellectual capital of Wall Street.
VH: For those who are new to the industry, “emerging financial technologies” are …
DS: Emerging financial technologies generally fall into 5 subverticals: Alternative, Social, Micro, Virtual, and Mobile. Collectively, they’re sometimes referred to as Finance 2.0, which transforms financial services by leveraging the social web.
VH: We noticed that DRS mainly distributes information and keeps in touch with clients through social networks.
DS: Instead of expanding our website, we’ve decided to integrate our Internet presence more fully into the social web. We’re now based entirely within Facebook. Our flagship research product, alt.capital.notes, is housed there. Messages posted to our Twitter microblog, alt.capital.dispatch, are also published to the wall stream on our Facebook page. Moreover, we use restricted access in our Facebook groups to share deal flow and proprietary research with our clients. We’ve also developed our own branded gift application on Facebook, Rogue Banker, as a way to gain brand visibility on the network.
VH: Makes sense, since the social web is where DRS’ target clientele hangs out. So, what are the trends in the financial tech industry?
DS: Perhaps one of the most exciting developments to come out of Finance 2.0 is online personal financial management (PFM). Sites such as Mint, Wesabe, and Rudder provide users with a single point of entry for all of their financial information, from credit cards to retirement savings.
Social investing sites are also going through significant growth. KaChing, Cake Financial, Zecco, and Covestor enable users to manage a “paper” portfolio of stocks and share investment ideas and analyses in a social environment. In the case of KaChing and Covestor, users with outstanding track records can eventually manage actual assets.
In addition, we notice a great deal of interest in the development of alternative equity exchanges, such as SecondMarket and XChange, and we believe this trend will continue to accelerate as strategic investors and employees seek liquidity.
There are some interesting activities in alternative financial media as well, especially as traditional print media outlets struggle to survive. The Wall Street Journal recently announced its intention to adopt a micropayments platform for its online content — a move which, if successful, could have far-reaching implications.
VH: Has the recession affected the financial tech industry?
DS: Even in the face of the worst financial crisis since the Great Depression, the pace of technological innovation is showing no signs of slowing. There’s no shortage of great ideas and great people who just love to build “cool stuff.” This is an incredibly exciting time to be an investor or entrepreneur, financial or otherwise. We continue to be optimistic and we look forward to the challenges and opportunities that lie ahead.
Join Venture Hype tomorrow as Strachan tells us what to look for in financial tech startups, common mistakes investors make, and some of the hottest niches in the financial tech industry.
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