Jay:  This week’s show guest is Mikaal Abdulla. Mikaal is the co-founder and CEO of 8 Securities, the leading mobile-only investing service for Millennials in Hong Kong and Japan. Prior to starting 8 Securities, Mikaal was a senior vice-president and the head of Asia at E*Trade. Mikaal, welcome to the show.

Mikaal:  Thank you. Thank you so much.

Jay:  It’s good to have you on. We just had a really, really good jam session at Startup Grind, so I’m honored to feature you again on my show because I thought that we talked about a lot of very good, relevant and pertinent and maybe somewhat controversial stuff, but I think we should take the opportunity now to go over all that because I think it was a lot of value for our listeners there. I’m thrilled. Thank you for offering to come on the podcast, and maybe for the audience listening in, you could just introduce yourself — who you are, what you do, and maybe give a little bit of color of your background.

Mikaal:  Sure. Again, thank you for having me. Maybe to start, as you mentioned, I spent most of my career at E*Trade. I was there for a little over 10 years, a great experience. It gave me an opportunity to travel and see the world. At our peak, we were managing 15 countries outside of the US. So it took me to Europe, the Middle East, India for a little while, and then a couple of stops in Asia. The last stop with E*Trade was in Hong Kong where I helped launched and manage E*Trade’s business in Asia and was there for several years and then made the decision around 2012 to start my own company and do my own thing. And that’s when I started 8 Securities.

Although people talk about fintech as if it’s something new, if E*Trade wasn’t fintech, I don’t know what is. So I’ve been doing it for a really long time. I decided to do my own thing — launched 8 Securities. Simply put, we’re in the business of offering mobile products to largely Millennials and, more each day, Generation Z.

Jay:  Fantastic introduction. Mikaal, you and I share a similar background. Obviously, I used to be in the sell side as well. I know the brokering industry here in Asia, as you have a lot of experience in. You, obviously, more on the electronics side and tech side of things. But what was it about specifically…why at that time in 2012? This is just digging into your entrepreneurial journey more, if you don’t mind sharing. I was a broker. We both went through the financial crisis in 2008, 2009. There were a lot of changes in the industry. What lead you, in 2012, to basically go out on a limb and do a startup as opposed to maybe perhaps an earlier data point?

Mikaal:  I think the main thing…it was born, as many startups are, out of a bit of frustration. What I mean by that, at E*Trade, although it was a relatively fast company, it was still very much a US-centric business, and I worked for the international division. And it got to the point where changing a button on the homepage would take two weeks, and 90% of all of the priorities were the US. So it just got to the point of a lot of inertia and being very difficult to do things, and I like to move fast, and I like to see results. And I think that was the tipping point for me where I understood I just really have to be in control. I really need to manage my own thing and do my own thing. And that was really the push I needed to start 8. For so many entrepreneurs, it’s that point of frustration.

In addition to that — I always have to speak to the other side, because there’s no point in starting a company if you don’t see an opportunity. And I think in 2012 was when I really felt that mobile was going to be very, very important to investing. Obviously, in the banking world, it began gaining traction, but at that point, there still weren’t very many good mobile solutions in the market. And so I really saw that as an opportunity. Many of the investing services that were in the market were the same things that had launched in ’99 and 2000. Nothing had changed.

Part of the problem was they were young customers when they opened their online account in 1999, but now most of the market are people in their 50s and 60s, and nothing new had come out to serve younger customers. So in many respects, it was kind of being the new E*Trade for younger customers.

Jay:  Absolutely. Just curious, again, just sticking with this entrepreneurial vein here and discussion, theme, as someone that had a successful career on Wall Street and this sort of thing and is used to having this steady income stream, which many of us are very accustomed to, for you to actually branch out and… We’ve talked about how, my view is that most of the successful entrepreneurs, regardless of what you see on TV and what’s romanticized by Hollywood and this sort of thing, are people that are more experienced and have years of experience within a niche or a specialty, and they’re able to actually figure out what the problems and the pain points are and find a solution to that. So my question is, for you, someone that was used to getting a steady paycheck, it must have been quite difficult for you then to take the leap — whether it’s family and obligations and this sort of thing — and how were you able to navigate that? How were you able to convince your supporters, your family and friends? And how were you able to make that transition and actually be like “You know what? I believe in this so much that I’m going to go out on a limb and just do it”?

Mikaal:  The first thing I’ll say is I have an unhealthy appetite for risk. It is unhealthy, but I do like risk. I think, first and foremost, there was never a point of fear of doing it. I knew I wanted to do it. And then the second component is, obviously, you need to have the capital and some runway to do it. Today I’ve got five kids. They go to international schools. It’s not cheap, so it was a big, big leap to do it. I don’t think I’ve ever said this publically, but I was relatively early at E*Trade. I got stock options by pure dumb luck. I sold those options at E*Trade’s peak — I think the price was about $26 — and a couple of months later, Lehman happens. E*Trade was a part of that implosion, and I think the stock went down to one. So I exited at a perfect time and was able to use that, the proceeds of those stock options, to fund the company.

And so I kind of laid out my business plan, had a good sense of the costs and what it was going to cost to get this thing going. 8 Securities is a licensed company, and it’s certainly not cheap to do because you have to have regulatory capital. You have to hire a certain amount of people. You have to have compliance officers. So it’s not cheap to get up and running.

But what I failed to do, I think, was really understand the opportunity cost of not having that paycheck. So I had a good sense of how much it cost to start the business, but I really underestimated not having that paycheck and probably was too optimistic in terms of how quickly I would be able to raise money. It took a lot longer than I thought. So it certainly wasn’t easy. And in hindsight, you sort of question whether you do it, but I did do it, and it worked out.

Jay:  I think that’s pretty inspirational. I talk to entrepreneurs all the time. I have three kids myself. I’m fully cognizant and intimately aware of the costs of living in Hong Kong or any major city here in Asia or in the world, for that matter. A lot of people hang up the hat when they have a family. And I think what I love about your story, Mikaal, is you’re doing it. You have a big family, and you’re not just surrendering to corporate America or corporate life, I you will, and you’re still pursuing it and successfully pursuing your dreams. So I think that’s inspirational, and I love that about your story. So thank you for sharing that with my audience.

I want to dig in now into a little bit of 8 Securities. Maybe you could give us a deeper primer of what it is, and I know that, right now, it’s very targeted on mobile, which is, obviously, the trend going forward, and it’s targeted, I guess, predominantly towards Millennial and that age group. But I know that you also went through a couple of pivots. So perhaps you could walk us through that.

Mikaal:  Yeah. I think it’s natural for many companies and startups to have a few bumps in the road, and we certainly had our fair share. When we launched our first product, we had a view that personalization was going to be the key to our success. And this was still very much web 2.0 and had a view that “Let’s personalize this product, get customers the control and ability to create their own dashboard, and that was the way forward.” And we completely got that product wrong. I think technically, it’s perhaps the product I’m most proud of, but the reality is it was just too complex, and customers didn’t use it.

So we had to rethink it, take a step back, and that’s really when we went all in with a view that simplicity is the key. And if I had to do over, I would have started with simple — not personalization — because simple is working. And I think simple is ultimately what people want. Ultimately, we just look at the market, and people want three things. They want simple. They want affordable. And they want mobile. And that’s basically what we built.

Jay:  So you are an online trading platform. Not to compare you, but one of your closest competitors is Robinhood, which is the family US-type mobile trading platform. Is your revenue model and your business setup, is it essentially the same as they are running? And maybe you could explain that a little bit for our audience.

Mikaal:  I certainly took inspiration from what Robinhood did. There’s no doubt about it. My partner and I have watched them and seen their success. It would be disingenuous of me to say that we thought of going this route independently. So certainly give them credit in terms of creating something really special in the US, and it felt that it had complete and total application in Asia. So, in a nutshell, it’s zero-commission trading, allowing customers to trade stocks for no commission.

I think anything that is a transaction and anything that is a commodity is ultimately going to go to zero. It’s only a matter of time. So our view was, we don’t love the idea of transaction pricing. I think that subscription is really the way forward, and I think that’s especially true for Generation Z, those people that are kind of entering their mid-20s. Subscription pricing is the way forward. So we said, “How can we take that idea and apply it to investing?” So a little bit different than Robinhood.

Ultimately — and we’re going through this evolution now — it’s free stock trading, free crypto trading, personalized trading ideas that are surfaced through data and through the community and ultimately bringing that full package to customers for a low monthly subscription fee. That’s the idea.

Jay:  That’s fantastic. So have all those verticals been built out — the crypto trading and the social, almost like an eToro type where you can follow a famous trader that’s doing very good trades. Is that functionality fully built out at 8 Securities?

Mikaal:  Where we are now is, obviously, the stock trading is out and live in the market. We’ve been doing that for almost 12 months, and then that business has been growing really rapidly — customers, accounts, turnover… We’ve seen about 50% growth per quarter, so it’s trending in the right way.

Ultimately, the model is you offer zero commission trading. And zero commission trading is going to attract a lot of customers at a very low acquisition cost. So your necessity to go out and spend a lot on marketing…you don’t have to do that. You’re going to get customers. You get customers. To some degree, we have to subsidize some of the expense because it’s not absolutely free to trade stocks. We have the execution cost and so on, but we bear that cost. We bear that cost in lieu of having to spend on marketing.

So we acquire the customers, the business grows — you grow customers, you grow assets, you grow turnover — and with that growth, you have multiple ways to consider monetizing it. One of those is obviously the value in the data. We’re using data to essentially give customers trading ideas. Basically, let customers have a view of what the community is doing in terms of what stocks are they buying and selling, what’s the buy-sell momentum. If I’m interested in buying a share of Nike, interesting for me to see who has been the most successful trader of Nike and so on. And all of that is done anonymously, so customers have full anonymity and a unique username, but I have the benefit of knowing that all of that data is real. It’s validated.

So if someone says they bought Apple at 11 and sold at 200, you’re going to know whether that’s true or not, unlike a bulletin board or something else that’s complete hearsay. You could be talking to a genius, an 8-year old, or a liar. The problem is you don’t know which one.

Jay:  Right. So for the user, let’s say I were to go on… Full disclosure — I don’t not have an account with 8 Securities. But if I were to go on today, this afternoon, can you walk us through the user experience? How long does it take? What kind of verification is needed? How long does it take the transfer money in and get started trading right away?

Mikaal:  We are a mobile-only service. 100% of our business is on iOS and Android. It’s pretty much now a 50/50 split. But you download the app. We take you through account opening in the app. It takes about three minutes. It’s four screens. Unfortunately, Hong Kong still requires a web signature. They still require the application to be witnessed. So it’s quite archaic and unlike the US, Japan, Singapore, and other markets that are fully digital. Hong Kong is not quite there yet. So there is still this online-to-offline process that has to happen because we’re a licensed business.

But I think, on the positive side, it also gives us a chance to meet customers, gives customers a chance to come to the office and see that it’s real and get to know the team a bit. But the account basically is opened the same day, once the application is completed and signed. You can then transfer money into your account from your bank. So any bank — you can do it by ATM, check, whatever means. Once your money is posted, same day, you’re free to trade. We offer about 15,000 stocks and ETFs, the Hong Kong and US market. And it’s absolutely free.

The idea, when we began building out the product, was let’s just take all friction out of the experience as much as possible. So the experience is just super, super simple. We cut out all the bells and whistles. There’s not a lot of distraction. I pull my quote, and I see the price. You could do a bit of research and then execute a trade.

Jay:  On the revenue side — we talked about this before. It’s basically, because you’re user acquisition cost is so low, you’re then able to take the users and potentially offer them leverage and this sort of margin-type financing, which is where, I guess, you make the bulk of your fees?

Mikaal:  That’s right. There’s a couple of revenue streams, the first being the subscription. People that have opened an account and want to trade stocks for free, they’ll always be able to the do that for free. That’s not going away. It’s really on us to add more features and make it worthwhile for customers to pay a subscription because they want this added value — like the crypto that’s coming, the social features, and so on.

I think, from that perspective, it’s the subscription, it’s margin lending — which typically, most brokers in Hong Kong, that represents 50, 60% of their revenue anyway, so it’s a very traditional revenue model.

And then I think, on the other side of the equation, we also offer B2B services. We have the B2C business, which we’ve discussed, and on the other side, we have B2B where we work with big institutions to offer our products and services to their customers on a white label business. So between the two sides of the business, that’s the bulk and our revenue.

To give you some idea of what it takes, for every 20,000 subscribers, we can generate about 2.5 million in recurring annual revenue. The nice thing about that model is it’s predictable. And the problem with brokerage or any sort of transaction-oriented business model is you always have your ups and downs. If it’s a big market, everyone is active, that’s great. But at the same time, that can also disappear. So I think bringing this idea of recurring revenue into our business model is an important one.

Jay:  That’s fantastic. Last question on the technical and business structure that you guys operate there, as far as custody goes, how is that set up? Has there been any issues or concerns from potential customers about — I think this is relevant for anyone that’s trading markets — “What happens if you guys go under? What happens to my money?”

Mikaal:  Absolutely. It’s a great point. When you launch a startup and a licensed fintech company that’s dealing with real client money, you can build the best product in the world, you can build a great brand, you can build all of that out, but the one thing that takes time that there’s no shortcuts to achieve is trust. That’s something that an HSBC or a Standard Chartered has just because they’ve been around a long time and that’s sort of inherent in their business. And so, for us, that’s one thing that we realize is going to take time.

But the reality of the situation is that it’s no less safe to invest at 8 Securities than it is with HSBC. That’s because the regulator requires us to hold client cash in custody in a corporate bank account. So your money is actually sitting in a corporate bank account with HSBC, Standard Chartered Bank of China, and so your cash is segregated and completely safe, and all of your investments that you’re making — so the stocks that you hold — are held in custody with either the Hong Kong Stock Exchange or the US Stock Exchanges. So the reality is there is virtually no risk to your portfolio, should anything happen to 8 Securities, but that’s something that we have a talk about and educate customers. And it’s something that our larger competitors don’t have to because, again, they’ve been around a long time.

Jay:  Right. That just comes down to, as you said, education and trust building. And that just takes time. And the longer you guys are around, the better the trust and the higher the trust will build. It’s a long game, I suppose, especially in the securities industry.

I want to just quickly shift gears for a few minutes. Thank you for the great overview of 8 Securities. I want to talk about something that we spoke about for a while at the event last time, which is venture capital. You’re quite a seasoned entrepreneur, and you’ve been on both sides of the business. You’ve been in the industry, and then you’ve sort of graduated to become an entrepreneur. I think that raising capital, obviously, is a difficult thing, particularly in Asia. I know that you guys had some roots in Hong Kong.

I want to just get your thoughts on what’s the state of venture capital, VC funding, right now, how you think that has evolved since when you started, and what do you think the future trends are? Maybe that will allow some of our startup founders who are listening in to have a reality check. Because I think that if you ask younger founders or maybe people that have connections or maybe went through some accelerator and got some funding, they might have very different views on venture capital and funding and when you should take money and how much money you should take. These are all considerations that a lot of people don’t actually make because they’re just so focused on getting the money.

Mikaal:  That’s right. I think the first thing I’d say is it is so hard to raise money, and nothing drives me more nuts than when I hear people say, “Oh, the market is awash with venture capital. There’s so much capital.” I don’t care whether it’s a seed round, whether you’re raising $50,000 or a late-stage round. It was just hard. And anyone that started a company and any entrepreneur knows that. First and foremost, I want to say that I think it is extremely difficult.

The other thing that is a bit misleading is we’re always hearing news about how much venture capital is being deployed in Asia, and while it’s true and while it’s growing, the reality is the vast majority of that venture capital is going into very few companies. These are companies that are late-stage. Maybe they’re on a path to IPO — some of these Chinese giants that will IPO. And so it is misleading, and I think in Asia, it really is more private equity than it is risk capital or venture capital. So I think there is, broadly, a shortage of venture capital in the region. And there are hundreds of thousands of companies that need venture capital at any given moment. But the reality is, only two, three percent of them are going to get it. And securing it is tough.

I think, in many respects, when we raised money initially, in some respect it was easier because there was very little competition at that time. There just were not a lot of… We weren’t competing with a lot of other fintech companies to raise money because we were relatively early in Hong Kong, so it was unique.

While I think that there is more venture capital today than there was then, I think the competition for that venture capital has gone through the roof, and I think that the standards are much higher. So we raised an $8 million round initially, quite honestly, with a prototype and a pitch deck and a team with some experience. I think that would be very, very hard to do today, just because the competition is so much greater. And I think the expectations from venture capital are much higher. You have to have traction. You have to have growth. You have to have a proven business model.

And the difficulty for many fintech companies in particular, is that they’re very capital intensive. You want to have a licensed fintech company, and you’re dealing with real customers and real money…it’s really tough to start a business without three to five million dollars. So how do you show traction? How do you prove out a business model without the capital? So sort of a chicken and egg situation.

Jay:  The infrastructure cost to set up any sort of financial business is just so high. When it just comes to the simple regulations that you have to get, it’s human capital, it’s ROs, it’s licensing and all this. You’re absolutely right.

As we move to the conclusion of the interview, I like to ask, especially our seasoned entrepreneurs, if there’s one piece of advice that you could give to perhaps an aspiring fintech entrepreneur that’s looking to raise VC capital. It’s obviously not easy. You’ve made that abundantly clear. So aside from that reality check, what advice could you give them to maybe increase their success?

Mikaal:  I think that the one word I was say is persistence. I ran a calculation, and I think we met, since launching the company, about 120 investors. And the reality is that 95% of those do not result in an investment. So you really have to have thick skin and get used to hearing “no.” The most frustrating thing is most VCs won’t say no. Either they go silent or they say maybe or they say, “Call me back when you have traction,” which is beyond frustrating for an entrepreneur. But you have to get used to going into meetings and understanding that the vast majority of those are not going to result in an investment.

But my advice to any entrepreneur is never say no to a meeting. As you take more investor meetings, within two or three minutes, you know whether that investor is serious or not. But despite that, take every single meeting because what every investor will do if they like you and they like your product, they may not believe in the business today, or they may not be ready to invest today, but you can always ask that investor to make two introductions — “Please make two introductions” — and they’ll do that for you. 90% of them will do that for you. And take every single meeting.

What I found is, regardless of the intent of the investor, I always learn something new in every meeting. It really is the truth. So every meeting I’d take, and I’d learn one or two things about my business, something I haven’t thought about, something I’ve thought about but haven’t spent enough time flushing it out… So I just think persistence.

But the difficulty there, Jay, is that it’s time. As an entrepreneur, you just don’t have time to do these meetings and run a business, and it goes to maybe a second point of advice — have a co-founder. I cannot even begin to imagine doing this without a co-founder, without a partner, because you can’t be in two places at one time. So someone can take the lead with fundraising. Someone can take the lead with getting the business going and product. I think it’s a complete necessity. Doing it on your own is just tough.

Jay:  Right. That’s great advice. Mikaal, thank you so much for sharing your experience. I just have the last two questions. The first is I want to give you an opportunity to share with the audience if there’s any data points that you’re actually free to share or any milestones that you’ve just passed or maybe coming up this year that you’re looking towards that we can direct our audience’s attention to. And then the final question after that would just be where the find you, follow you, and learn about what you’re doing at 8 Securities.

Mikaal:  Thank you. In terms of our goals, we just closed another round of funding. It is a never-ending process. To date, we’ve raised $60 million. We just closed a $25 million round with Nomura Asset Management. So that’s our first strategic investor.

Jay:  Congrats.

Mikaal:  Thank you. Thank you so much. And I’m looking to raise another 10. And I’ve got to say, there’s no correlation with the amount of money you raise and the success of a business. I’m not proud at all of having to raise $60 million, because if I could have a rewind and do-over, maybe we could have gotten from point A to point B with a lot less. Nothing to be proud of, but it sort of keeps it going. It is necessary.

In terms of where we want to go with the business, the one thing that sounds cliché but it is something all focus, is really just customer satisfaction. The number of trades, the amount of turnover, whether we do three, five, 10 billion in turnover next year, the key thing is there is a direct correlation with how happy your customers are and all of those other KPIs. So it’s just customer satisfaction — fixated on it. There’s a lot of things we could do better, but everything kind of goes back to that.

Jay:  That’s great to hear. A lot of times when companies and startups mature, it’s sad to see when they lose sight of what actually is their core competency. And for you guys, for sure, it’s customer satisfaction and growing that. So I’m glad you said that. Finally, where is the best place that people can find you, follow you, or maybe open up an account with 8 Securities?

Mikaal:  Account — please go to 8Securities.com or the app stores, and you can do it that way. If you want to get in touch with me, it’s @MikaalAbdulla on Twitter. And my email is Mikaal.Abdulla@8Securities.com.

Jay:  That’s very generous, actually, of you giving your email, and I hope you don’t get bombarded. Thank you, Mikaal. Thank you so much for your time and for sharing your journey and congrats on the latest funding round. We’re definitely going to keep you on the radar, and we look forward to hearing more about your success, so thanks again for coming on the show.

Mikaal:  Thank you so much. Thanks for having me.

Jay:  Alright. Take care.

Mikaal:  Thanks.