How Amazon-backed investment startup smallcase grew its userbase 7X in 3 years
Bengaluru-based smallcase allows users to invest in model portfolios adhering to “themes” or a strategy. Founded in 2016 by Vasanth Kamath, Anugrah Shrivastava, and Rohan Gupta, the startup has shown solid growth in a still nascent space. Here’s how.
Friday March 04, 2022,
9 min Read
Most successful founders today, who’ve “made it” in the conventional sense of the term, talk about how, when they started, no one really believed in them, their idea or their business — except them. What they lacked in external validation, they made up for in self-belief — undeterred and unflinching — and that perhaps makes all the difference
CEO and Co-founder Vasanth Kamath’s story is no different. When he started building out the platform in 2016, the Indian retail investment space was nascent, and, there were certainly no millennials casually recommending stock trades on social media.
Investors and users alike did not believe in smallcase, or see the merit in a platform that could help the everyday man invest in curated stocks, Vasanth tells YourStory in a conversation.
Nevertheless, in the wake of the astounding success of online brokerages back then, Vasanth, along with fellow IIT Kharagpur alumni and co-founders Anugrah Shrivastava and Rohan Gupta vaticinated the need for a solution like theirs.
And that self-belief paid off in spades.
Today, smallcase is the biggest investment strategy platform in the country, integrated with every big digital and banking brokerage service out there, which gives it access to more than 95 percent of all existing demat accounts.
While its topline has grown 15X since 2019, its user base has grown 7X to 45.2 lakh investors in 2022, versus 6.6 lakh in 2020, when it opened to users.
But Bengaluru-based smallcase’s story begins much earlier.
Vasanth says the first couple of years were focused on laying down the pipes and building the plumbing to ensure structural integrity, and that meant onboarding digital brokers who would offer the startup’s products and services as an additional, value-added service on top of their base product.
"Onboarding each broker takes anywhere between four to six quarters. We were live with one broker until June 2018 when we started. In 2020, we were live with 10 brokers..so, the first three-four years (of our journey) went into that sales cycle of convincing these brokers to work with us, integrating with them, and then getting the compliance approvals," Vasanth says.
Initially, smallcase started out just with, the largest online investing platform, where it got the opportunity to work all the kinks in its products, out. In 2018, smallcase partnered with Axis, and became broker-agnostic when it saw demand from other brokerages increase.
The platform currently is integrated with 14 top brokers in the country that help capture a majority of the market, and enable access to a majority of the active demat accounts present.
What helped Vasanth sell smallcase to online brokerages was its use case — helping new and experienced investors invest in stocks, especially at a time when brokerages were actively trying to steer investors into equities.
“Mutual funds have never been the first recommendation or first communication for a product that goes out from a broker. Stocks used to be that, and brokerages used to send messages saying these are the stocks you should look at. But that is where the entire ecosystem realised that exposing new, first-time investors (especially) to volatility and movements in the stock market is obviously not the best thing to do.”
Smallcase’s proposition was similar to a mutual fund — an expert-curated set of stocks that tied into a bigger, overarching theme. But, because these strategies were essentially managed by a professional investment manager, these “smallcases” offered the benefit of a mutual fund, but with more direct exposure to stock holdings — sort of like an in-between compromise between mutual funds and direct equity holdings, with far greater plusses than a mutual fund.
This not only made smallcase more palatable to the general public, but also helped brokerages move more users into stock trading, and place more trust in the startup and its offering.
An ardent smallcase user tells YourStory that the biggest reason he likes using the platform is that he can’t be bothered to put in the research that conscientious stock trading needs.
“I don’t want to be parsing financial statements every quarter or research how cyclicality affects stock movements — smallcase helps me keep track of these. Also, smallcase is most useful to me when I stumble across a particular theme — like electric mobility or a sudden spurt in businesses catering to rural India, either on news websites or social media. If I think it’s an investable idea, I usually go on smallcase, do a quick search and check out the themes they have available for the topic I have in mind.”
“More often that not, I do manage to find a model portfolio on the platform because it’s so extensive. So, while it helps me use a little of my brain and understanding, it also helps me solidify my inkling with a nice layer of expertise,” he says.
Building strategies on smallcase
While smallcase started with an in-house team of strategists and professional brokers who used to publish investment strategies on the platform, today, it lets SEBI-registered professionals create their own strategies on the app using the ‘publisher’ platform.
Essentially, anyone who’s SEBI-registered and certified to manage investments, has a trading strategy and a sound knowledge of the market, can come and set up strategies on smallcase and have people subscribe to them.
This democratisation of investment strategies has not only helped the investment platform offer its users an array of options to pick from and ideas to invest in, but also ensured stickiness so that users keep coming back for more unique investment ideas as macros such as economy, geopolitics, etc change.
“In 2019 — Feb or March — we launched the publisher platform. At the time, we had just under 30 investment managers who came to the platform to publish their strategies. Today, it’s 200,” Vasanth says.
This unique offering, where anyone with all the necessary certifications in investment management can come, create their own strategies, and publish to smallcase’s users, not only unlocked a new revenue stream for the startup, but also allowed many such individuals to set up their own small investment management firms using smallcase’s infrastructure.
“On the manager side, we have seen a lot of entities that start their business with smallcase. They said we have some research, we have an outlook, we have some insights..now, a way to monetise this would be to start your own portfolio management service, your own hedge fund etc. But now, with smallcase, you can do it with a much lower upfront investment, and lesser net worth requirements from users,” Vasanth says.
“One of our managers used to be a fund manager at Franklin Templeton — now, he has started his own smallcase practice. Another manager on our platform used to manage the public portfolio for one of the largest private equity (PE) funds in India — now that team has started their own practice on smallcase too,” he reveals.
Building on this, smallcase also opened its platform to non-licensed/quasi-professional stock market enthusiasts who wanted to build strategies they could recommend to their friends and family — and while those strategies are not open to the wider user base since they’re not professionally managed, there has been substantial traction and activity there as well.
According to smallcase, as of January-end, strategies created in-house by its team accounted for 39 percent of the total use-case options on the platform, while independent managers and partners created 33 percent of the total strategies. User-generated strategies made up 29 percent of the total published strategies, indicating that social investing, predicted to be the next driver in stock market investing, is gaining momentum.
The journey of making it big
The right way for a startup like smallcase to gauge user traction is how investors behave in the first month when they sign up on the platform, versus the 12th and 24th month, Vasanth quips.
Initially, users start out with small investments — Rs 5,000, or Rs 10,000 — and then, depending on their experience and the sort of returns they see in their portfolio, take their next call of increasing or decreasing their usage of the app.
For smallcase, that 12th and 24th month-mark has always shown an increase in not just the average ticket size or amount of money invested, but also the number of strategies an investor subscribes to on the platform.
From the first month to the 24th-month mark, smallcase has seen an average ticket size growth of 5X to 6X, Vasanth says. So, if a person invested Rs 100 in a strategy when they signed up on smallcase, by the end of two years, they felt comfortable enough investing up to 6X that amount.
“It’s mostly because they’re liking the smallcase form factor. We also launched a Systematic Investment Plan (SIP) module in smallcase around three years ago, which investors like — so we’re seeing growth there as well. Close to 30 percent of all investments in strategies on smallcase are via SIPs,” Vasanth informs.
Clearly, users who sign up on smallcase and stick with it appreciate the platform for its unique offering and keep coming back to either top-up their portfolio, or find more strategies to invest in.
Where Vasanth wants to go next is adding more investment assets on to the platform, such as Equity Exchange Traded Funds (ETFs), Real Estate Investment Trust (REITS), as well as US stock and cryptocurrency, which are all financial instruments investors today are looking to use to diversify their portfolios and get more global exposure.
"The idea is to see how an investor could build a larger part of their portfolio with smallcase. And that is something that we are very keen to do."
Vasanth says his biggest takeaway from building a successful business from the ground up, even when people did not believe in it, is that there’s nothing that isn’t possible, and there’s nothing called ‘status quo’ because things are always in flux, ever-changing and evolving.
"Everything that has been created in this world has been due to the effort of people, so there is nothing not possible at all," he tells YourStory, adding people in the world have built beyond things that were once said to be too hard to build or too hard to even become a possibility — and that is the fuel that keeps the wheels spinning at smallcase, even today.
When he thinks about the future of the startup, and what he wants to do at smallcase — whether it’s adding more assets as part of its offering, tweaking the UI/UX, onboarding more strategy-makers etc — he says his North Star hasn’t changed from what it was one day zero: building a good, solid product for retail investors.
Edited by Anju Narayanan