Making Equity Investments Simpler With smallcase The Bengaluru-based equity investment platform has grown rapidly over the last 15-16 months, going from one to eight brokerages, and is expecting a revenue growth of 6x over last year.

"What we realized is that even though equity investment is maybe the best asset class for the long term, not many people know what to do," says Vasanth Kamath, co-founder at smallcase.

Kamath and his two co-founders Anugrah Shrivastava, and Rohan Gupta - all IIT Kharagpur graduates - found that even though it had become much easier to invest in stocks over the years, people were still going for alternatives such as mutual funds where they don't quite control all that is happening with their money.

According to Kamath, the newer generation ideally wants a more transparent system when they invest.

With smallcases, which he insists is something they wanted as a common noun, Kamath says they are giving back control to the end consumer and cutting down on a process that was erstwhile cumbersome.

Deciphering smallcases

Essentially, a smallcase is a portfolio of stocks that one can directly invest into.

"What we were trying to essentially say is why should stock investing be based on single stocks?"

Investing in such a portfolio of stocks helps reduce associated risks because it is diversified and encapsulates a bunch of different investment ideas together, says Kamath.

But such a portfolio-based approach has existed in the past as well, how is smallcase any different?

By integrating with brokers and making a seamless platform where people can buy, reshuffle and manage these portfolios with simple clicks, he says.

On mutual funds, Kamath says apart from the fact that one is not holding stocks directly but is rather holding unit of fund, it is a one-size-fits-all approach where customizability is not an option.

Mutual funds are also generally long-term, he adds, unlike a smallcase where the investor has the option to enter and exit at any given point of time, all within seconds. "This can capture use cases that can be made in like one or two minutes like trade war is happening somebody can actually create a smallcase for that."

They have also begun to onboard advisors and analysts - creators as Kamath calls them - who can create their own smallcases. The Bengaluru-based company creates a micro site for them, with all their details.

Apart from providing these tools to brokerages and creators, the company has also created a broker gateway that can be used by those who provide advice and have an audience. "Basically they have traffic, how do you make it actionable for them?"

Journey So Far

Incorporated in 2015, the first company that they worked with was Zerodha. Working out of Zerodha's office with a six member team, smallcase made their services available through the financial services company about a year later.

15-16 months back, the platform was only live with Zerodha. Currently, eight brokerages including the likes of HDFC and Kotak Securities are selling smallcases.

The brokerages have the option of creating their own portfolios while in the case of zerodha, which doesn't have a research team, smallcase creates them.

Once these brokerages started coming onboard, "the second step for us was who creates and manages smallcases," says Kamath, adding that's how the idea to include individual advisors and research analysts came through.

Brokerages and the individual creators charge their own fee to the customer. How the company earns is, for the brokerages, it charges a flat fee of INR 100 for each smallcase that is transacted and, for the individuals, it charges a percentage of what they make.

Kamath says the company is on course for a 6x growth in terms of revenue this year from a year earlier.

He said the company aims to be profitable by the end of fiscal 2022.

Growth Going Forward

The company, which now has a total strength of about 90 employees, announced a $8 million Series A fundraise led by Sequoia India earlier this year.

Kamath says they were always well capitalized but why they decided to raise the new funds was because they realized there was "an opportunity to build this fast and ensure that nobody else can come in and kind of replicate this."

A name like Sequoia backing them also helped on other fronts. He says it "gave a lot of comfort to brokerages and our partners...that this is not some random young company that's come up, there's actual serious intent to basically build out."

The fact that the VC fund has previously backed numerous companies in the space also helped in terms of the learning that they brought to the table.

According to Kamath, 2019 also saw a convergence in the financial services space where larger players realized that it was probably not in their best interests to build newer products and instead started exploring partnerships with start-ups.

Going forward, he says such collaborations will gain more traction, with major players putting out their application program interface (API) out there for others to build on.

"I think APIs will become more and more important as in every financial services player is saying how do I get an API out there," he says.

As a company, smallcase plans to go live with the country's top 15 brokerages by July next year. Once that happens, Kamath says they will have coverage of about 95 per cent of all demat accounts in the country.