MacManus: Why Trade Me bet on Sharesies
Technology columnist Richard MacManus talks to a founder of millennial fintech start-up Sharesies and its big new shareholder Trade Me to find out how they got together and what they're planning.
My recent column about startups in New Zealand raised some hackles in the local tech scene. I had argued there were too few startup success stories coming out of our startup accelerators (and certainly no unicorns). Others responded that while we may not be churning out multi-million dollar startups, accelerators are helping to train entrepreneurs.
Well, it turns out the training worked for at least one group of local entrepreneurs: the founders of Sharesies, an investment club for millennials. Sharesies, which featured in last year’s Kiwibank FinTech Accelerator, has just sold a 16 percent stake to Trade Me for $14.11 a share. That values Sharesies at $24.4 million, which will have pumped up the portfolio value of its early investors.
Sharesies makes it easy for young New Zealanders to start investing in professionally managed investment funds. It’s a well-designed product that appeals to millennials due to its slick website and the ability to invest low amounts.
There are downsides to Sharesies. It’s got the highest annual platform fees for small investors, according to the financial services comparison site MoneyHub. Although to be fair, we’re not talking huge fees here – it's $18-$30 per year depending on the amount invested, plus whatever extra fee is charged by the investment funds (which averages around 0.5-0.6 percent per annum, per fund).
More significantly, Sharesies is competing with Kiwisaver. Young investors are almost certainly better off putting any spare money they have into a Kiwisaver fund, which has the added benefits of a government tax credit (up to $521.43 per annum) and a compulsory employer contribution (if you contribute 3 percent of your salary, your employer must match it). While a Kiwisaver fund is a long-term investment, crucially for millennials it does allow an early withdrawal to help purchase a first home.
The only benefit of choosing Sharesies over a Kiwisaver fund is the flexibility to withdraw your funds at any time, for any reason. Sharesies itself somewhat cheekily recommends to “have it both ways” and invest in both Kiwisaver and its product. But that seems like an optimistic reading of how much disposable income many young people have.
Despite the Kiwisaver competition, Sharesies has undoubtedly been successful in reaching their target millennial demographic. Since leaving the Kiwibank accelerator last year, it has signed up 24,500 users – who collectively have invested over $27 million through the platform. Eighty percent of those investors are under 40 years of age.
Those statistics must have piqued the interest of the elder statesman (and Mr Moneybags) of New Zealand startups, Trade Me.
I asked Trade Me CEO Jon Macdonald whether Sharesies’ millennial audience was indeed the main driver for their investment?
“This was a consideration for us, but not the main driver,” Macdonald replied. “We were more focused on working with a Kiwi company that we see big potential in and which helps us with our ambition to build out an even more vibrant online ecosystem in New Zealand.”
Macdonald described the youthful Sharesies team – which has six co-founders – as having “enormous potential.”
“We also like the Sharesies ambition of giving someone with $5 the same investment opportunities as someone with $500,000,” he said.
Clearly, it benefits a local startup like Sharesies to be associated with Trade Me. Despite the ever-increasing influence of global powerhouses like Facebook and Amazon, Trade Me still dominates the NZ online ecosystem. So the PR benefits alone will be a big boost to Sharesies.
I asked Macdonald what else Trade Me will do for its new protégé.
“We’ll bring our consumer audience, ability to cross-promote the right product at the right time to the right person, and trusted brand to the table,” he said.
As noted above, Sharesies had six founders. None is more impressive than their leader and CEO, Brooke Roberts (nee Anderson). I last spoke to her in April 2017, while the nascent company was still working its way through the FinTech accelerator. I contacted Roberts again last week, to find out more about her startup journey. I learned that it all started from humble beginnings.
“Leighton [Roberts; her now husband], Sonya [Williams] and I were working at Kiwibank or Xero, and as these businesses were sponsors of the Kiwibank Fintech Accelerator we were given extended leave from our roles to join the accelerator and create Sharesies.”
Their initial goal was to try and build Sharesies within three months “from a regulatory perspective” and also tap “connections to capital so we could fund growing Sharesies.”
Both goals were achieved.
Relations with the FMA
“We got to discuss our concept with leaders from the Financial Markets Authority and build a relationship with them, which is still ongoing today,” Roberts explained, as one example of the valuable networking the accelerator provided.
So the accelerator worked for Sharesies, from both a networking and angel investment viewpoint. Although Sharesies’ growth rate after the accelerator must be attributed to the team itself, who had to finish building the technology and then market it. There are no shortcuts when it comes to shipping product.
Where to now for Sharesies, after its great start and the recent cash injection?
“Trade Me’s investment in Sharesies will enable us to help Kiwis know that investing is now accessible to them,” Roberts replied. “This capital will also enable us to build out our product.”
While she wouldn’t specify details of how the product will evolve, options include “looking at how we incorporate advice and build out our investment options.”
To explain a bit more, Sharesies users are given the opportunity to invest in eleven funds – each one a different risk profile. Nine of these funds are operated by SmartShares, an index fund manager owned by the NZX. The two other funds offered by Sharesies are run by Pathfinder, a fund manager which specialises in socially responsible funds.
So adding a layer of (proprietary) advice on top of those outsourced funds would add more value to both Sharesies’s users and the company itself.
'Creating lovable experiences'
Roberts is also keen to learn from Trade Me’s marketing nous.
“Trade Me is one of the most loved and trusted brands in New Zealand,” she said, adding that she’d like Sharesies to create “lovable online experiences” too.
Overall, this is undoubtedly a win-win deal for both Sharesies and Trade Me – also for the Kiwibank FinTech Accelerator and its investors. Although it may not necessarily be a win for millennial Kiwis, who shouldn’t overlook Kiwisaver as their primary investment vehicle.