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An Algorithm for Asset Investment

Asset management has tended to be reserved for the upper crust. Startup firm Scalable Capital intends to open up it up to a broader audience. Can it work?

19 Feb. 2016

Erik, FinTech startups are springing up everywhere right now. As a customer, I can barely keep track of who's doing what. What makes Scalable Capital different?

We offer personal asset management over the web. In concrete terms: we work with each customer's clear set of risk guidelines to create a diversified global financial portfolio comprised of Exchange-Traded Funds (ETFs) representing all global asset classes, including stocks, bonds, commodities and real estate. And then we were constantly to optimize it. If market risks change, then our risk management technology adjusts the mix accordingly. The customer doesn't need to worry about it. This service isn't available to classic private investors anywhere else. At a bank you need at least 500,000 euros in startup capital for this kind of service. We work with as little as 10,000 euros, all at much lower costs.

That sounds like an obvious service. Why hasn't some other startup filled this niche before?

Before you can engage in this type of transaction, you first require approval by the German Federal Financial Supervisory Authority, known as Bafin. That approval in turn requires years of experience and a certain amount of nominal capital. Even so, the most valuable part of our company is our technology. We spent almost 12 months developing our risk management technology, capable of calculating the potential loss for each customer's portfolio on a daily basis and carrying out investment decisions based on that. We were greatly aided in the development of the software by the fact that one of our founders has spent 30 years researching in the area of financial market risks. Dr. Stefan Mittnik is a Professor for Financial Econometrics at the Ludwig Maximilian University of Munich.

A year spent developing the technology before go-live: not every startup can afford that. How did you finance yourselves?

We approached business angels and venture capitalists. Because all of us have intensive experience in investment banking, it didn't take us long to find receptive ears. The Bafin approval also played a major role and naturally helped make the business plan more convincing. It ensured that we were taken seriously from the start.

Scalable Capital launched onto the market in autumn 2015. The company was founded right in the middle of the FinTech wave. Coincidence or calculation?

We've all known each other forever, or at least it feels that way, and four of us worked for a long time at Goldman Sachs. It was a period when friendships and shared goals were forged. We had long planned on striking out on our own there at intersection of banking and the online world. The idea for Scalable Capital was developing constantly, and at some point the time was ripe. There's a big market and we knew that we could offer a better asset management service for private customers than traditional banks.

In March you'll be presenting at SCALE11, the CeBIT's Startup zone. Why would a financial startup present at an IT fair?

Because we're convinced that CeBIT is where we'll meet people who see the real potential in new technology, and not treat it as a fad. They are exactly our target audience. We want those digital natives to get to know about Scalable Capital. And we also want a larger public to have a chance to find out about our startup. We view SCALE11 as a tremendous venue for this.

You've grown to 30 employees, and have big plans ahead. What happens after the fair?

The coming months will be very important for us. In April we launch in the Great Britain. By the end of 2016 we intend to expand into Switzerland. We've formulated a business model that will transfer very well into new countries.

More on Scalable Capital and on SCALE11