CNBCs second annual Disruptor 50 list is out. A total of 50 private companies from 27 different industries get props for their forward-thinking businesses. No less than 15 financials occupy spots on this year’s list.
While all 15 financial companies have interesting business models, three in particular caught my attention as being companies with particular promise if they were ever to go public. In particular, each of these companies is disrupting the traditional financials business in interesting and promising ways.
Read on and I’ll explain what makes this trio of disruptive businesses so attractive as investments. When these three financials go public, you’ll want to be a part of their IPOs.
Financials Disruptor — Motif Investing
Motif Investing was an easy first choice. Hardeep Walia co-founded the company in June 2010 with the idea of providing investors with an inexpensive and transparent method for making financial bets on specific themes, which the company calls “motifs.” For $9.95, you can create your own basket of 30 stocks or ETFs weighted as you see fit. Then, whenever you feel a rebalance is in order, you pay $9.95 and Motif Investing takes care of the rest.
So, why is it so disruptive?
Because it allows even the smallest investor ($250 minimum) the opportunity to easily create their own motif based on real-world ideas. For example, I’ve created several motif portfolios (theoretical, not with real money) as a way to track the performance of some of my own investment theories.
One idea is all-cap investing.
Over the years, I’ve found that most ETFs and mutual funds professing to be all-cap funds are really just large caps in disguise. There’s nothing for someone like myself who believes such a beast should be more evenly weighted between micro-, small-, mid- and large-cap stocks. Thus, I’ve created both a passive fund, up 2.6% since its creation January 15, 2014, and an active fund, up 3.2% since its creation on May 30. While still early days, it’s interesting that the passive fund isn’t doing nearly as well when compared to the S&P 500.
Now imagine if I wanted to create a real-dollar version of my active fund. I would need a heck of a lot more than $250 to get the portfolio up and running. And that, my friends, is the beauty of Motif Investing. It’s a game changer in the financials space, and the big-money investors who’ve put up $86 million in funding to date know this all too well.
If Motif Investing doesn’t get more people investing — nothing will. It’s definitely on the IPO track.
Financials Disruptor — AngelList
No. 26 on CNBC’s list of 50, AngelList allows start-up founders to present their business ideas in an online forum to wealthy investors experienced in early-stage funding.
While I have no doubt this is going to continue to be very popular with entrepreneurs in the U.S. — it raised $125 million for 500 companies in 2013 — it’s definitely a godsend here in Canada (where I live), because our venture capital industry borders on the pathetic. Entrepreneurs north of the 49th parallel have gained a captive audience to pitch their idea.
Take GetGifted.com, a Charlottetown-based online platform that connects local merchants to consumers through gift giving. Retailers select gifts between $10 and $100 to contribute to a pool of items that are made available to GetGifted followers every Tuesday via email. To claim your gift, you must go into the store within 14 days to present your coupon from your smartphone. Retailers pay to be a part of this gift-giving process which helps generate new clients while also rewarding existing clients.
In its first year, 10,000 followers joined up in Prince Edward Island alone. Now it’s looking to grow. In early May, AngelList announced an initial equity investment of $400,000 with eight of the 10 investors based in Atlantic Canada and the other two from Toronto. Hoping to raise another $600,000 to expand its reach beyond the Maritimes to Toronto and Boston, GetGifted is an excellent idea that could work for almost any business surviving on foot traffic.
Not surprisingly, while AngelList has 2,993 investors interested in Canada, only 945 (31%) actually reside here. I hope for Canada’s sake that this percentage increases over time. Regardless, AngelList is a great service deserving of its disruptor status and a future IPO.
Financials Disruptor – Zuora
I thought about including either Betterment or Wealthfront as my third choice for disruptors in the financials space, but realized you can get most of what they’re offering by going to Vanguard directly. Therefore, I’ve switched gears, opting for a second business-to-business model rather than a second business-to-consumer operation.
What’s so special about Zuora?
Well, for starters, it has raised $127 million since it launched in 2007 with an investor list that includes Benchmark Capital, Greylock Partners and many others. More importantly, it’s taken the subscription business model and made it hum by providing an easy-to-use software solution for companies generating recurring revenue.
Zuora’s website illustrates how Fairfax Media, an Australian media concern, uses Z-Business to offer a number of different publications through a self-service portal. By leaving the processing of payments to Zuora, Fairfax is able to focus on its customers and their overall digital experience. With subscribers happy about the level of service delivered, it’s less likely that they will cancel their subscriptions and that means a steadier stream of revenue for Fairfax.
While it’s debatable how much of the economy will switch from a purchase model to a subscription model, it’s clear that Zuora is going to be a big part of whatever happens. Of the three financials mentioned here, I’d say Zuora is the most ready to go public.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.