Why we think MarketsFlow is fairly valued at £3.6m and our unique offering.

Before we delve deeper into the question of fair valuation, it is important to consider a number of factors, which go into determining a fair value:

1. Business model-USPs IP/Tech, idea, industry – Finance or Leisure

2. Stage of business – startup, growth

3. Opportunity – financial as well as market size

4. Accounting based Valuation

5. Vision

We have all heard that valuation is an art more than a science, and I would argue that it is true at any stage of a business, it is for the same reason that a young loss making company like Tesla has higher valuation than Ford or Renault.

With that said, lets get down to business, with the question at hand, why we are valuing MarketsFlow at £3.6M for our current round, and what makes us unique?

1. Business model, idea, industry – Finance or Leisure

Let’s start with the industry based analysis, it is true that value has a lot to do with the industry a business falls into – the reasoning being, availability of liquidity,  the appetite for consolidation and acquisition in the industry, and also the need for innovation.

As a general rule leisure/retail industry businesses are valued lower, tech is valued higher, pure finance is valued even higher, fintech where tech is disrupting finance, are valued highest.

So you get the idea, that fintech business are valued the highest in terms of like for like compared to other industries. Within finance – if you are skewed towards Investments you are valued higher than say providing transaction based banking ie retail or saving based product or payment or insurance etc.

Why are Investment Banking products valued higher than transactional finance products?

Transactional type products only have one source of revenue and that is the profit margin. However depending on the Investment product, you have the ability to earn management fees as well as performance fees. This provides the ability to earn a very high gross profit which is not marginalised compared to other sectors of Finance.

MarketsFlow falls under fintech, and within Fintech falls under Investment Management category. Currently we have the ability to provide Robo – Advisory services (subject to our FCA authorisation), plus the ability to manage investments based on our platform (subject to FCA Investment Management permissions).

By offering the above services, we are able to earn much higher revenue per client than most other fintech businesses – and that includes brokerage, insurance, retail or transactional banking, payments, challenger type transactional offering, low costs Robo Advisor transactional offering.

Our intelligent Robo-Advisor platform provides the unique opportunity to Institutional and Sophisticated (not limited to but including HNWs) to manage optimised investment portfolios. As it is a platform offering, we charge license/subscription fees which is significantly higher than transactional fees. Our fees for Retail Investors range from £99-£300 p/m depending on the product, and for Institutional clients from £1500-£4500p/m

Now, lets look at MarketsFlow’s business model. But before we do that let us understand the difference between MarketsFlow’s Intelligent Robo-Advisor compared to the traditional Robo-Advisors in the UK, US and rest of the world.

Traditional Robo-Advisors offer customers based on risk profiles, the convenience of buying Investment Units in ( ETFs, Mutual Funds or other Collective Investments) which are usually managed by Wholesale Operators like Blackrock or Vanguard. This results in a low margin transactional sale.

MarketsFlow’s Intelligent Robo-Advisor on the other hand, provides portfolio optimisation capability to retail and institutional clients. As it is a significant efficiency and optimisation offering, rather than a pure convenience offering, we are able to demand higher fees. By using our platform investors, are able to make intelligent investment decisions around creating an optimised portfolio in all market conditions. Without such a platform, they would be relying on research, analysis and their own bias in terms of investment decision-making. Further, MarketsFlow intelligently optimises the equity asset allocation decisions in terms of the position sizing, weighting and re-balancing.

Due to the significant higher value offering in terms of investment decision-making element, MarketsFlow demands a higher valuation.

The economies of scale are significant for MarketsFlow platform too,  you can run multiple portfolio strategies or you could  manage multiple clients with the similar strategies on the platform.

 

2. Stage of business – startup, growth

MarketsFlow is valued fairly for the stage it is at. Let me explain, as far as we are aware – currently there is no other offering in the market which allows investors to run their portfolio on a platform

The only portfolio management products out there are the ones which simply show you a breakdown of asset classes and provide reporting.

MarketsFlow does not simply display the portfolio allocation, but it actually manages it ie the Robot manages the portfolio optimally.

It took us 2 years to develop the platform, which required continuous back-testing, refinement of algorithms, applying supervised machine learning to unstructured data, and optimising AI configuration layers.

So, whilst you may classify us as a start-up, we are quite an advanced stage start-up, in fact we have a solution , which does not exist even within some of the largest global investment banks.

We have had progressive partnership and collaboration discussions with a large financials data provider, fintech solution provider and independent broker.  We had also been approached by a Dutch boutique Investment bank with acquisition interest for our platform in May 2017.

We have also applied for Advisory Wholesale and Retail FCA license which covered completing MIFID application. Even though we have applied under article 3 exempt, completing MIFID application was no easy task, even for the large established banks. Majority of the firms have retail advisory, but the fact that we have a unique product we have applied for both wholesale and retail offering.

We are significantly ahead of most incumbents, in terms of our development, despite not having a direct competitor. Having made significant progress so far, gives us a significant competitive advantage and offer high barriers to entry for potential new entrants.

 

3. Opportunity – financial as well as market size

We see the AI opportunity, as one which is going to impact every other industry, and we certainly feel that we are at the fore-front in terms of ML/AI in Investment Management.

At a macro level, the UK Wealth Management is estimated to be around £1bn and Asset Management at £6.9tn, US at £24.7 tn. These are significantly large numbers, and we see them as direct accessible market to us (TAM).

From a financial perspective, we are projecting our 2019 revenues to be £2.9m with EBIT of £0.9m, 2020 revenues of £35m with EBIT of £24m. The reason for such high profitability margins is our expansion into AUM/fund management business, which we expect to launch in the latter half of 2018. These figures also include our expansion into the US market and cover both advisory business as well as AUM.

 

4. Accounting based Valuation

The accounting type valuations are best applicable to later stage businesses or businesses which do not exhibit exceptional growth. We feel MarketsFlow is an exceptionally high growth business with vertical and horizontal diversification opportunities as listed below:

  • Robo Advisor Platform Fees for Retail
  • Robo Advisor Platform Fees for Retail
  • Performance Fees
  • Fund Management Fees
  • Managed Account Fees
  • Wealth Management Fees

If we are to examine the accounting based valuation for our projected 12 months revenue forecasts at £1.0M, or run rate of £4.0m in Dec-18, we are significantly discounted at 10X revenue multiple, for a high growth startup business.

 

5. Vision

We strongly believe that no valuation analysis is truly complete until, you take account of the vision of the business.

It is the vision of the business, its founders and management team, which can truly differentiate the leaders from the laggards.

Our vision for MarketsFlow as a business is beyond just a platform, we are building a new paradigm in investment management, where investment decision-making is going to be optimised from all aspects including performance, risk and volatility management. In this new shift, investors are going to become portfolio designers, and MarketsFlow platform is going to optimise and deliver the designed portfolios.

I hope that having read the above, you will have gained a better insight into our thought process and decision making, in determining a fair valuation of £3.6m for MarketsFlow. I look forward to welcoming you on-board as our new shareholders, and also sharing your input in the future growth of the business or as we like to think, the future of wealth management.

 

Thank you for reading!

Tom Nash – Founder & CEO

MarketsFlow

 

Risk Warning: Any financial performance figures refer to the past and that past performance is not a reliable indicator of or forms a guarantee for future results. For detailed Risk Warning click here.

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