This interview is part of Scaling Enterprise FinTech | The Handbook, launched in partnership with SixThirty Ventures.
1. Give us the backstory – what were you up to before starting up, how did you get the founding idea?
The idea behind TransFICC came from my two prior job roles. I was leading sales at LMAX, an FX (Foreign Exchange) Trading venue and it was a real problem to get banks to code to our trading API – typically it took banks 3-6 months to complete coding work and due to this cost, many banks were unwilling to take on the work. This was a huge bottleneck and therefore business problem for both LMAX and the banks.
I found a technology provider who had a great business model, a ‘Hosted API translation’ service for FX (simpler and lower cost) to help with the above problem. I ended up joining that company and although the business model was good, the technology was not stable or flexible. At the same time one customer approached me and asked about building out the firm’s solution for Fixed Income trading markets. Due to the technology flexibility issues, the company was unwilling to look at Fixed Income markets.
After doing some due diligence to ensure that several banks had the same business/technology issues in Fixed Income, I approached two of my ex LMAX developer colleagues with the TransFICC idea.
2. Who was your first customer, and how did the first sale come about?
Commerzbank was our first customer. Their business team liked our technology background (LMAX Exchange) and our business model to help replace their incumbent vendor. The incumbent vendor had a 75% market share of major Fixed Income banks globally and charged a regional bank typically €5M per year and global banks €12-€15M per year. In addition to TransFICC offering cost savings the bank liked the potential to have a more flexible business model. However, with only a small team and no track record, we needed to find a way of building a small pilot that could be used in production but also minimised the bank’s risk. We agreed on a pilot at a fixed cost and two trading venues only to prove the solution.
3. Could you summarize your journey to scale from a sales, go-to-market and business development perspective, perhaps split into 2-3 key phases?
Stage 1 – Bootstrapped March 2016 – June 2017
As banks are regulated they need production level systems for trading Bonds, Swaps etc. this meant that we had to build full testing systems before we could start building the solution. We also needed to pitch banks on our solution idea and also find sponsor banks who were willing to contribute design ideas, test and sponsor a pilot.
Stage 2 – Seed Investment/Citi Innovation Lab June 2017 – March 2020
Citi were impressed with the initial pilot product, first customer and also our software testing process. They suggested we move into their Innovation Lab in London and they also sponsored a large piece of development work. Citi wanted some product design enhancements that work to make bank integration easier, utilise less hardware and also make the product easier to support. A secondary goal of being in the Lab was for Citi to learn from us on the software testing/release process. This engagement also led to Citi investing in TransFICC alongside Commerzbank (main-incubator) and Illuminate Financial. A short video on the Citi partnership is available at the bottom of our website’s home page: https://transficc.com
Stage 3 – Series A /Scale Up A April 2020 – present
In April 2020, we raised a Series A round with new investors Albion VC, ING Bank, and HSBC Bank joining. This funding is now being used to scale our operation and provide more trading venues to existing and future customers. Key expansion areas are:
A) Adding new development and other technical staff – 9 people hired since April
B) Adding 1st direct sales hire and also putting channel partnerships in place
C) Building our own data centres in New York and London so we are not reliant on other vendors and we can reduce ongoing costs for customers
4. Which was the most challenging phase, and what would you have done differently?
The most challenging was Stage 1 – Bootstrapped. We were trying to sell the idea to Tier 1 and 2 investment banks but they wanted to see a ‘production ready’ product. Not easy when you only have three people. We made a few mistakes, including:
A) listening to a Tier 1 investment bank who tried to get us to pivot in the first 2 months. Two months wasted coding work.
B) picking the wrong 1st trading venue. We chose a new venue with good technology and free access but that venue has not gained traction and we have not been able to re-sell.
C) initially we didn’t try any incubator or accelerator programs because they were not Capital Markets focused. When we did apply and joined Finlab in Singapore and Accenture in London, they provided good learning check points and helped with our capital raising by providing traction validation.
5. When did you decide to expand into the US market, and how did that go?
Our customers e.g. Banks such as Citi, trade and operate on a global basis. Key decision makers are mostly based in London and New York, so we were visiting customers to make initial introductions as soon as we started. Decision making with these banks is also multi tiered and involves buy-in from Trading Heads, Technology Leads, Operations, Information Security, Finance, Procurement, Legal.
The time from the first meeting with Citi to production usage was just under three years. Whilst a long time, they are the world’s biggest bank in Fixed Income trading and we now have infrastructure for Citi based in New York.
We are talking to six other top 10 banks and have NDA’s signed, multiple contact points and expect that we will sign three of these within the next 18 months. All of these banks have operations in the US.
6. When did you first decide to raise venture capital, and what has been your approach to financing growth over the years?
Initially we were bootstrapped and were considering raising Friends, Family or Angel money. However, we gained traction with the technology team at Commerzbank, who introduced us to main-incubator, Commerzbank’s Fintech Investment arm based in Frankfurt. Commerzbank agreed to invest on the condition of a co-investor and Illuminate Financial, a Capital Markets Fintech VC based in London joined our Seed round.
Within six months of our Seed round closing in Sep 2017, Citibank invited us to move into their London Innovation Lab with a plan to sponsor our product and also asked to join the Seed round. Citi is one of the largest banks globally in Fixed Income trading and we thought it was strategic to have Citi join the round.
In Sept 2019 we decided that the time was right to accelerate our team build up. Originally we planned to raise £3M but ended up raising £5.5M due to ING Bank and HSBC wanting to join as strategic investors. Hence, our capital raising has been largely driven by finding bank partners who wanted to lead investment rounds.
7. How is building an Enterprise FinTech firm different from a “regular” SaaS / Enterprise Tech company, and what three things should founders get right?
We are in the Capital Markets FinTech space and the differences with consumer finance FinTech are are follows:
- A) Understanding the regulatory environment. Although TransFICC does not need to be regulated, all of our customers are regulated (Banks,Asset Managers and all the venues they trade on for Bonds, Swaps, Futures and Repos). This requires a very high level of Information Security and Compliance sign off before any systems can be deployed to production. These sign offs cannot be short circuited and come at a cost which is partly why we needed to raise capital and also choose strategic bank investors.
- B) Fragmented Markets. Capital Markets are highly specialist and a large bank will have separate trading teams and technology systems for Equities, FX and Fixed Income. Our area, Fixed Income, is further divided between Government Bond Trading, Corporate Bonds, Futures, Swaps and Repos. Some markets are also regionalised and trade in local time zones across the globe. While this creates a business opportunity for TransFICC due to 200+ trading venues, customer decision making can also be fragmented and very slow.
- C)TechnologyComplexity.Duetothefragmentedmarketsandcustomersdescribedabove, we also need to support a range of technologies. For example, some venues require very high throughput of messages e.g. 8000 messages/second and also require latency to be measured in Microseconds. Other venues have complex workflows where we need to hold state of messages for hours. Some customers want all software hosted on dedicated servers for compliance reasons and some want all software hosted in the cloud to save costs. Supporting these different technology needs requires a flexible approach to design and build.
Founders need to get all of these right to meet customer requirements.
8. What’s on the priority list for you and your team for the next year?
We have been building up our technical team but in the next year the focus is to build out the sales function and also diversify the customer base. Currently we have 5 global bank customers and one global market data customer with all sales being closed by the Founders. As we expand coverage to more asset types and need regional coverage, we will add direct sales staff and some sales channel partnerships. There is also interest from Asset Managers and Hedge Funds for the TransFICC service. This will require some minor product enhancements and sales resource.
9. Where is the financial services sector headed in the next 12-18 months, and what should we be watching out for?
All financial services are undergoing change and all participants need to think ahead on how they will adapt. Key themes are:
A) Market Structure. Regulators want competition and FinTech is enabling new competitors.
B) Changing Technologies enabling efficiencies. Use of Open Source Components, Cloud computing, Blockchain and API’s enable new solutions to be tested and built at lower costs.
C) Automation. There is still massive scope for efficiency gains in workflow processes in areas such as payment processing, regulatory checking or in Capital Markets, and back office settlement
10. Your favorite place(s) for a meal, coffee or drink?
For work, I like to meet customers for a coffee at a central spot but not another Starbucks. My favourite locations are London – The Royal Exchange. In New York – Grand Central Station.