Jay:  My guest today is Adam Dodd, CEO of Freetrade. Freetrade is an investment platform that allows customers to trade stocks and EFTs with no commissions or fees in the UK and Europe. Adam, welcome to the show.

Adam:  Thanks, Jay. Thanks for having me.

Jay:  No problem. It’s good to get you on and connected. I’ve been hearing some good things about your company, so I’m excited to talk to you today and get an update and hear about all the goes things you’re working on. Before we get into the business side, maybe you could give our audience a little bit of background of yourself — what were some of your past ventures, where you’re from, and what did you do before you decided to build a startup?

Adam:  Sure. Cool. I’m from Canada. We’re a London-based stockbroker, Freetrade. I moved over to London back like four years ago, and I came over with PKMG were I was auditing and then I was advising, M&A advisor to banks and brokers in the industry. And when I moved over here from North America, I obviously needed to open up a new kind of investment account, and I was really disappointed with the options available. With my background, looking at the financial institutions on both sides of the Atlantic, there wasn’t really any good reason why people over here were paying such high commission levels with such crappy products as well. So that’s when I made the jump to start Freetrade about three years ago.

Jay:  I love the startup founder stories where it’s a personal pain point that they decide to just solve for themselves. But prior to that, you hadn’t done any startups before. It was just a thing you were like, I’m just going to go do this?

Adam:  Yeah, man. I’m a first-time entrepreneur. I haven’t had a super long career before that, so out of university, I just flew over to Asia, wandered around there for a while, spent a year in Japan trying to figure out what I wanted to do. Then there was that Great Recession. I decided I’d be sensible and get a qualification, so I qualified as an accountant, a chartered accountant. But as soon as I did that, I know I wanted to move to London and get involved in the startup scene, if you will. That’s what I did.

Jay:  I’m sure you’re using some of your accounting skills now. But I think working for a corporate is definitely not as appealing as some would think it is.

Out of curiosity, Adam, what were some of the options that you did have available? Was it just local brokers? Was there Interactive Brokers? Did you try looking at them, or were there any other options that you were looking at specifically?

Adam:  Yeah. The big one here in the UK is a broker called Hargreaves Lansdown. I still have an account with them, my pension. But the problem is all the incumbents, it’s kind of an oligopoly over here where everyone is charging £12 or £10-12 as a commission. So it’s really expensive if you want to buy a stock or an ETF when you maybe only have a couple hundred pounds at the end of the month with your paycheck.

And there’s literally no good app in the UK right now, other than ours, where you can just download from the App Store and even sign up for account without being directed to their website and having to fill out paper forms and things like that. So the product experience is extremely poor as well. So you kind of marry those two up, and there was a great opportunity, I think, for a new style investment product to come out.

To answer your question, Interactive Brokers, they are over here in the UK, but they have like a $10,000 minimum account size. I think probably 95% of our customers, our first 10,000 customers at Freetrade, wouldn’t be eligible to open an account with them. So we’re definitely going after a different market than those guys.

Jay:  So I guess one of the closest competitors would be Robinhood, obviously; over in Asia, we have 8 Securities — Mikaal was on our podcast earlier towards the end of last year — all providing the same sort of solution.

I just find it fascinating because I feel like London is one of the global financial centers of the world, and it’s quite interesting. It’s one of those things where you’d think someone had it figured out already, even just four or five years ago, but apparently not. I’m glad that someone like yourself has decided to take up the challenge.

Why don’t you tell us a little bit about early days and how you actually got started. It must have been… I can’t even imagine if I were to set out to start a brand new company, trying to tackle this type of massive market, especially one that is so highly regulated. How did you go about doing it? What were the early days like, if you could give us a little bit of some history there?

Adam:  Sure. We had, I think for anyone outside of the UK, we had definitely a unique way of funding our business from the get-go. We raised our first and all of our capital so far through crowdfunding. I guess the summer of 2016, we raised our very first amount. It was like £170,000. We went on this website called Crowdcube and just put it out there. “Hey, we want to build this commission-free stock broker. Here’s our pitch deck, and here’s some screenshots.” I think something like 400 people backed us pitching in £1,000, £500 or something like that. That just gave us enough money to build a prototype. We went through one of the accelerator programs here in London. It’s called Octopus.

And then once we built a prototype, instead of doing what would be a more traditional seed round with maybe some seed funders, some angel investors, we went back to the crowdfunding, and we raised 1 million pounds in about a week. At that point, we had 4500 people on a waiting list for the product, I think, so still pretty relatively well unknown. I was blown away at how fast that went.

So with a million pounds at that point, we were only three people. So we were like, okay, well, we have a million pounds now. And our original plan was to launch a light service on top of other people’s infrastructure, if you will. And we were like, we have a million pounds now. Let’s go for it. And we got our own authorization from the FCA — it’s like a financial institution — started building our own technology.

And then just in June of this year, we did another crowdfunding round. This time we raised three million pounds in one day. And that was just from our existing community as well. It was in private mode. I think at that point we had 35,000 people in our community. And they funded the business.

And then off the back of that, we’ve now launched the service. I think we have something like 90,000 in the community now, 10,000 onboarded customers, and we’re growing at about 10% a week, and that’s like a controlled growth rate right now while we kind of scale the team as well. So things are looking pretty good.

And just today, actually, Jay, we launched US stocks on the platform, so everyone can buy Tesla and everything. Previously it was just UK stock. So we’re rolling out pretty strongly now, shipping features pretty rapidly. Android’s coming probably next month, definitely before the end of the quarter. So it’s exciting times, man.

Jay:  Wow. That’s fantastic. And what a story. I don’t think I’ve heard of any sort of fintech type company that actually crowdsourced their funding. Out of curiosity, the crowdfunders, what was the terms of the crowdfunding? It wasn’t a traditional equity raise was it?

Adam:  It was an equity raise. Here in the UK, there’s a pretty established crowdfunding scene. Crowdcube, I think, was the first one, the first company to do this. There’s another one called Seedrs. I think that they’re actually the largest funders of seed-stage private companies now in the UK. So there is a serious equity culture around that, and they have… I think they have something like a million users, Crowdcube does. It’s kind of a thing in the UK now where people, they’re not going to put in all their portfolio, but to diversify and get some access to startups and private investments, a lot of people do dip their toe into crowdfunding.

The biggest crowdfund ever, at least in the UK, was a couple of months ago. Monzo did 20 million on Crowdcube in — how many hours? It was just a couple of hours. It was amazing.

So it’s a thing over here in the UK. To the people that invest £100, £1,000 or whatever, they get real shares of Freetrade, and they’re shareholders.

Jay:  That’s incredible. From an administrative perspective, I know that in the US, we try to raise funds, there’s certain limits on entities and this sort of thing. I think there’s like a hundred investor minimum. Did you guys run with any sort of minimum investments from your crowdfunders? How does all the legals and reporting and all that stuff work? I imagine if you’re getting 50, 100, 500-pound checks, then it might become quite a headache to have all these LPs. Right?

Adam:  Yeah, if we were doing it all ourselves, it would definitely be an administrative headache, but that’s where the platforms come in. So Crowdcube has a certain model. That’s like their business. Seedrs has a slightly different model, but they take care of that administration — collecting payments, issuing shares, certificates, all that kind of stuff.

But in terms of minimum investment size, it’s £10. So we have lots of people that just put in £100 or £500. I think our average investment size is around £500 in the round, and we had over 3,000 people participate. And I think, actually, it’s almost the opposite where if you look at some of the bigger crowdfunds in the UK, they cap the amount that you can invest so that it can reach the largest market possible or the broadest participation, because the whole point is that we have this community. You go on our website, and there’s a community board. Everyone is discussing different stocks and all this kind of stuff. It engages them with Freetrade because they do have a share of this company, and they want to see it succeed.

That’s how we have 90,000 people, just kind of a viral acquisition loop where people are referring other friends just because they believe in the company and because they want to bump themselves up the waitlist too, of course.

Jay:  That’s incredible. Congratulations on those funding rounds. It seems like quite a success.

Again, just for my personal… I’m not very familiar with the crowdfunding side of things, and I’m surprised that this model hasn’t been more proliferated over the US and other parts of the world. It may be out there. I haven’t really heard of it or have researched it. Have you found or seen any issues with then going on to raise venture funding? Do VCs and that sort of thing, do they have any problems or stipulations or reservations, if you will, for funding or backing a startup that had previously used crowdfunding to raise their initial seed funding? You know how VCs are. Sometimes they get a little bit nitpicky about having a big cap table with a bunch of different investors on it, and they want it clean and this sort of thing. What’s your experience there?

Adam:  That is a thing, man. Some VCs, especially American ones, take a bit of a dimmer view on the crowdfunding space. I think over here, London-based VCs definitely understand crowdfunding a bit better, and they’ve seen really successful, now unicorn companies like Monzo and Revolut that have done crowdfunding and have gone on to have billion-pound valuations… The platforms that I mentioned to you, Crowdcube just raised a VC round led by Draper Esprit and also opened a portion of that up to the crowd. And so we’re seeing now, as businesses mature, they’re doing kind of hybrid rounds. That’s what Monzo did. That’s what Revolut did. And that’s probably what we’re going to be doing in our next round, because there is a bit of a limit to how much you can crowdfund without issuing a prospectus.

It kind of loops back to your original question, like why aren’t you seeing crowdfunding outside of the UK and Europe. A lot of that has to do with regulation. I know when we… I think the regulations have changed in the US very recently, but when we did our first round, I know we had to exclude Americans, Canadians, and Japanese residents because they had explicit regulations around offering securities to the public or non-accredited investors. I think the regulation has changed in the States now, but I’m not really up on it, to be honest. But that has been the main barrier to spreading this crowdfunding equity culture outside of Europe.

Jay:  I think it’s exciting. It’s an exciting time, and I think at the end of December, I hosted a fireside chat with Alan Chang who is the COO of Revolut. And so I’m hearing a lot of good things coming out of the UK, especially in the fintech scene. It’s an exciting time, so I’m happy to be speaking with you today. And I’m glad that you guys are picking up some traction.

Let’s drive in a little bit and talk about Freetrade’s business model, if you will. You mentioned that one of the pain points that you were aiming to solve was this high commission from the local brokers and the minimum balances that the likes of an Interactive Brokers have. So your basic business model, maybe you can just walk us through it. What are the markets that you trade? What’s the user experience like, getting customers on board? If I’m a customer and want to open an account, how difficult or easy do you make that?

Adam:  I’ll start with that then. As I said earlier, we’re the only stockbroker where you can go into the App Store, download the app and then get going within a few minutes. You download the app, and you just have to enter your name, your birthday, your address, and we can do an eKYC, know your client check electronically. That’s the experience for most people — 90%-plus people that have enough address history here in the UK — and you’re through the compliance checks, and then you just need to top up your account with a quick instant transfer, and you’re good to go. You have access to UK and US stocks right now. We’re going to be expanding that universe over time. It’s literally just a couple of taps, and you can buy shares of stocks. It’s not complicated at all.

Then going back to your question on revenue or business model… We do charge for instant trades. So we’ve got a freemium model where you download the app, you open an account and you start placing some investment trades. That’s all free. But if you want certain types of accounts, in the UK they’re called stock and shares ISAs. They’re tax-wrapped accounts, so you don’t have to pay capital gains and all that stuff. Or you could also open a SIP, which is a self-invested pension plan, kind of like a 401K or something in the States. So those kinds of things, we look at them. Okay, well, we’re going to charge you £3 a month, a nice flat relatively modest monthly fee.

And then on the backend, we still make money like every other stock broker, through what I would call treasury. So you earn interest off of client cash balances. You have order flow. You also have some margin on FX if you’re buying foreign securities, a variety of things. Brokers make money just like a bank, kind of, on that kind of stuff.

Jay:  Sure. And this service is exclusively for UK residents. Is that right?

Adam:  That’s just right now. We have a license to go across Europe actually already. So we will be rolling that out. Timelines haven’t been announced yet, but I’d say about a third of our community, people that have been on the waitlist who have signed up, are actually from the Continent. There’s a lot of demand from over there — Germany, France, probably the two biggest markets there. So Freetrade will be going across Europe in 2019, for sure.

Jay:  That’s exciting. With this sort of thing, you’re basically recreating the entire universe, the entire world, with markets. And there’s plenty of verticals that you could go down and explore. I guess it’s just a matter of prioritizing it based on demand and how you think you can roll these things out in accordance with the growth of your company and the funding and that sort of thing.

Just quickly on the regulatory side of things. You mentioned that you guys have some sort of licensing there in the UK. What was your experience like trying to launch an online brokerage? Was there any regulatory choke points that you were particularly tied up with or any in the future that you foresee that could potentially cause some delays in rolling out your business?

Adam:  In terms of in the UK, delays or anything like that, no, not at all. It’s not an easy process to become a regulated investment firm from the FCA, but it’s also not like some sort of impossible process. You just need to make sure that you have the appropriate staff first. You have to have the right expertise that the FCA is going to approve these people. Literally, they called it “approved persons.” And you’ve got to have systems and controls, robust financial controls, all this stuff. You’ve got to put in a plan. You’ve got to get it approved. We’re subject to MiFID II regulations, all sorts of regulations around capital requirements and this kind of stuff. There’s a lot of complexity around there, but that’s part of the reason why not everyone can do this and why this space was still available, I think. Going back to your earlier questions, why was no one doing this, it’s not as simple as maybe doing some other kind of consumer apps where you don’t have this regulation piece, because we are a financial institution. We’re going to have, very soon, the same permissions as Goldman Sachs in terms of trading. It’s definitely not an easy or simple thing. But it’s also not insurmountable if you have the right people.

Jay:  Okay. On that note, you mentioned when you first started and launched, you had three people, three employees that were working, were bootstrapping, and then you crowdsourced. What does that your team look like now and how do you foresee it to grow now that you’re growing your business?

Adam:  We’ve got about 30 people in the office now. I think we just hired three people yesterday. So we’re hiring as many excellent engineers as we can find right now. We’re probably going to be about double that headcount within the next three or four months. So we’re aggressively rolling out. We don’t want to become a bloated institution like these banks, but we have a lot that we want to accomplish, and as we roll out to Europe as well, we’re very mindful of localization. It’s not like the States where you start in California, and you can blitz across the US without changing the product. We are going to make sure that our product end, our customer service, and everything is localized to every market that we roll out across Europe. And that’s going to take some more bodies than it would otherwise.

Jay:  Let’s talk about 12 to 24 months in terms of priority. There’s a laundry list of things that you could obviously build out when you’re trying to build an online brokerage like you are, plus whatever else you decide you want to expand your empire to. What are the first handful of things that you plan on tackling in the next 24 months with some of this funding and potentially the future, if you do an institutional round?

Adam:  In terms of what are the big ticket items, Android is obviously right up there. That’s coming up pretty soon. We’re also going to be moving to a platform that we’ve developed internally, kind of a technology platform within the next, say, six months that’s going to enable us to do some cooler stuff such as fractional shares. So that’s going to be great from a user experience where people are going to be able to go and invest £200 in Amazon instead of having to buy one full share. That’s coming online pretty soon.

The platform itself that we’ve been developing is probably the single most exciting thing for us because we’ve had to plug into some, you might call it, legacy infrastructure over here in the UK to get going quicker. But we’re going to able to start expanding execution venues to all sorts of different places. Our universe is going to expand multiples larger than it is right now, and we’ll be able to provide a better experience for our customers through the product as well.

The piping over here is just a little bit different than the States, let’s say. And no one has built a new technology platform probably in like a couple of decades in the UK. A lot of the incumbents are on stuff that was built in the ’70s and ’80s. So we’ve got this brand new cloud-native, serverless architecture platform that we’re going to be rolling out, so that’s pretty exciting. And the potential features that we can then have control over, because right now, it’s kind of like a Napster experience when you’re looking for stocks where you have just a list of them, and you need to know what stocks you want to buy by searching for it. But where the product is going, we’re going to really help people discover investment opportunities and understand their portfolio, understand really basic concepts like diversification or the risk you’re taking for the expected return, these kinds of concepts and present them in a simple way. Because they need to be complex, but for some reason, they are always presented in complex terms by the incumbents. I’m sure you see this all the time. Right?

Jay:  Absolutely. It sounds like your audience and your user base will actually appreciate this, because if you’re targeting a different demographic of maybe less professional traders or more just average investors, then I can definitely see the value in that.

Adam, is there any plans to change the core business model? You mentioned right now you have to pay to get real time trades, but then it’s free to, I guess, do batch trades and then just execute them over the course of a couple times a day? Or how does that work?

Adam:  We’re just doing it at the end of the day right now. We might increase the frequency a bit as trade volumes grow so we don’t have a giant block. But where do we want to model to go is we’ve got this tier that we’re going to be releasing pretty soon, kind of our premium tier, called Freetrade Alpha. That’s where we want everyone to be — obviously not everyone is going to be but a large portion of our clients — where they’re paying a relatively low monthly subscription charge, and then you’re just getting everything for free. So you’re getting all your execution, instant, whatever. You’re getting any account type that you want. You’re getting all of our additional features that we start rolling out.

I just really like that kind of revenue model because it aligns our interests with our clients right now, because you look at pretty much every incumbent, Robinhood included, these guys are highly incentivized to increase the trade volumes, to get people to trade as much as possible with as high a value as possible, because they’re making money off of order flow. They’re making money off of commissions, on trading activity. And, Jay, I’m sure you know that’s the absolute worst thing you can do for your clients is make them trade too much, overturn your portfolio.

So if we have most of our customers just paying us high quality revenue, recurring monthly subscription, we can just concentrate on building the best product for them and not be incentivized in ways that wouldn’t align ourselves with them.

Jay:  I like that approach a lot. You’re going back to the core of what an entrepreneur should actually being doing, is building a business that’s focused on the customer and the user experience as opposed… And it’s difficult, obviously, in this particular vertical, especially with the fee structures coming down and this sort of thing happening across the world. But it makes me feel good to hear that you’re trying to stick to that core principle you have.

On that note, you mentioned Robinhood. I know that crypto is a pretty hot area that people are interested in, and Robinhood, I think they recently mentioned that they’re going to roll that out or they’ve already rolled that out. I know that 8 Securities is going to launching a crypto-trading product or service as well. Is there any interest or plans on your end to be looking at that space?

Adam:  So crypto, if we were talking a year ago, that would have been the number one requested thing on the platform. Now we don’t get any requests almost for it. But our approach to crypto is going to be the same approach that we have for every asset class, because we look at crypto as just a new emerging asset class. And you can get your exposure through ETFs, exchange traded products. I don’t think there’s any in the States yet, but there’s a couple of crypto ETFs listed in Sweden, in Stockholm. I think there’s some looking to go on the Swiss exchange as well.

So our customers will be able to get exposure to Bitcoin or a bucket or basket of cryptocurrencies through ETFs just like they can get exposure to precious metals. So you can buy gold — gold shares or silver — get some property exposure through an ETF. That’s the way we look at it, just as exchange traded products can get you exposure to any asset class.

Jay:  Last question on forward-looking goals and plans for Freetrade, do you guys have anything in the pipeline, whether it be a product feature roll out, anything of that sort that you would like to share with the audience or a funding round that is coming up that you’d like to talk about?

Adam:  Not really. We don’t have any funding news to announce at the moment, but you will see us raising additional funds within the next three or four months. We will be doing, as part of that, another crowdfunding round, because we want to make sure that our community, especially the guys and the ladies that haven’t had a chance, that didn’t know about us in the last crowdfunding round, to get a piece of Freetrade. And we’re going to hopefully do that through the app as well so that you could actually see your Freetrade investment sitting along with your publicly listed securities. So that should be a lot of fun. That is coming in 2019.

Jay:  Excellent. Good to hear. Adam, it’s been great hearing about your story. And, obviously, congratulations on your success. As someone that has been in the finance industry, it’s a breath of fresh air to hear of new people coming into the business trying to disrupt it and provide great solutions to very valid, real pain points that people have in the business — just investors in general. So I’m excited for you guys.

Last couple of questions as we look to wrap up. The first is a broad question. And you can answer this any way you want. But as far as trends that you foresee in the fintech space or maybe particularly in the brokerage space, online brokers, if you will, anything that stands out to you that you are trying to align with maybe in the next five to ten years? Do you see the industry consolidating as most people think that it’s going to? How do you see the world looking in five to ten years from now?

Adam:  If we’re looking at Europe and we’re looking at the UK, which is kind of our space, I don’t see a lot of these 1.0-online stock brokers surviving. They were built a decade ago or so and just have web interfaces, and there’s no way that they can compete with us on price, because that’s where the price is going. The price is going to zero. And some people, like ourselves, do have the technology to provide that. Others simply don’t because they’re getting it intermediated, and I think they’re going to drop off.

Other areas where I think we’re going to see fee compression too is in the fund space. Over in the States, we’re already seeing really, really low fees for SPY, imbedded expenses, and whatnot. But the equivalent over here, literally the equivalent of the same fund house is two, three, four times more expensive. So I think we’re going to see a lot of fee compression, maybe even go the way of that fidelity fund where it’s like zero fees in ETFs. So people are going to be able to invest passively without paying any cost. They can do that already with Freetrade, other than the ETF fees. I think those are even going to come down.

So we’re going to live in a world where you’re not going to be able to charge commissions to your customers, and you’re going to need to provide value to them in other ways to convince them to use your product. So it will be much more product-focused rather than just a utility and them paying or charging a tax on that.

Jay:  I think I agree with you there, Adam. Obviously in addition to the general broader industry consolidation, this fees race to zero is very real. If existing businesses don’t innovate or pivot or evolve, then they’re just going to be left by the wayside, for sure.

Second-to-last question… As an entrepreneur who has come out from a big corporate and has seen quite a very successful first run at building your company and gaining traction, what advice do you have for aspiring entrepreneurs that perhaps are stuck at KPMG, sitting there wondering if they should jump ship and try their hands at building a startup?

Adam:  I guess the first thing would be you really need to think about whether you’re in it for years. I think a lot of people, they look at the entrepreneurial experience, and they have some kind of rose-colored glasses they’re looking through. It’s a grind. It’s not easy. And you just need to be willing to sacrifice your life and every other aspect of it for many years. And that’s the one piece of advice that I would say to anyone that’s kind of getting started. You hit some roadblocks. It’s a battle. You’ve just got to grind it out, and you just can’t give up.

There’s so many times in the last few years that we could have just packed it in. So many different times that the company could have failed. And if we didn’t grind it out and just not give up, we wouldn’t be here anymore. So that would be my piece of advice.

I think if you see a lot of first-time entrepreneurs that maybe don’t last, it’s because of that. They bit off too much, and they just weren’t ready to make the sacrifices.

Jay:  Absolutely. Good advice. Thank you for sharing that with the audience. I think it’s a common theme for many entrepreneurs, whether they’ve had multiple exits and successes or just are in the thick of it like yourself. You really can’t be doing it for the money, because it’s not enough of a motivation to drive you. So it actually is a very, very hard decision because the money working for someone else at a corporate is good. It’s stable. And you don’t lose any sleep, necessarily, earning that paycheck. But it’s a completely different ballgame if you go out and build a company.

Adam, thanks again for your time and for sharing your story. What’s the best place that people can find you, follow you, learn a little bit more about Freetrade and maybe get involved in the next crowdfunding campaign that you guys have.

Adam:  The best place is our community. Just go to our website and click the community button on the top right, and there are thousands of our existing investors and thousands of our future investors, hopefully, just talking about the markets, talking about other fintechs, talking about the space here in London. So that would be the first port of call. Obviously, we’re on social media, of course, too. @Freetrade on Twitter.

Jay:  Awesome. Thanks again. I’m glad that we had a chance to talk, and I’m excited. We’re rooting for you and hopefully we continue to hear some good news coming out of the UK regarding your company. So best of luck to you.

Adam:  Awesome talking to you, Jay. Thanks, man. And we’ll let you know about the next crowdfunding round, and you can get a piece.

Jay:  Awesome. Thanks a lot. Take care.

Adam:  You’re welcome.

Jay:  Alright, bye.