Syfe, a consumer-facing wealthtech in Singapore with “multiple billions of dollars” of assets under management, will spend proceeds from recent capital raises on building its businesses in Hong Kong and Australia.
From there, it is likely to seek partnerships to enter Japan and South Korea, says its founder, Dhruv Arora.
Last month the company closed a supplemental raise of $27 million on top of a 2021 Series B round. Valar Ventures (operated by Peter Theil) and London-based Unbound are existing investors that participated in the latest funding.
Despite the firm’s Singapore base, Arora says the focus is not expanding into neighboring Southeast Asian markets. “We’re making a play for developed Asia, not Asean,” he told DigFin. “We’re going north.”
He says it’s difficult to build a business aimed at mass-affluent investors in Southeast Asia. People are unwilling or unable to pay for services, and the headline population sizes mask a difficult reality. “The absolute number of mass affluent [people] in Indonesia is similar to that in Singapore,” Arora said. But that absolute number equates to 1 percent of Indonesian people versus about half of Singaporeans.
He says Syfe now counts about 5 percent of adult Singaporeans as customers, with more than 100,000 active users.
He implies, though doesn’t say, that Syfe has neared the upper limit of its market penetration there, at least as the business stands today. But he believes Syfe has proved its business model works, and he’s now looking to apply it to Hong Kong and Australia.
“These three markets are massive,” he said. Japan and Korea are even bigger, in terms of both populations of affluence and baseline wealth. But whereas Syfe has been able to enter Hong Kong and Australia by itself, Arora reckons the company will need to find partners to enter these other markets, such as an existing funds distributor that needs a tech partner.
Arora declined to quantify the company’s AUM (the company says its VC funding has reached $79 million, but won’t disclose its valuation). To date, the biggest part of its business is managing portfolios for customer investments. This was Syfe’s original product. It has since introduced two more: a brokerage, and cash management.
The cash-management business became viable three years ago when the Federal Reserve sharply increased US interest rates. The brokerage business is designed to provide a different kind of fee model, one based on transactions rather than AUM.
It’s also useful to have different product lines as macro conditions change, inevitably impacting the attractiveness of certain types of investments or asset allocation. And the brokerage business allows for human advice, in addition to the algorithms that drive the core Syfe offering.
“If you don’t give customers the option of both, someone else will,” Arora said.
Arora is keen to add retirement solutions, starting in Hong Kong, where Syfe has partnered with Manulife, a leading player in the city’s Mandatory Provident Fund schemes. The MPF’s regulatory authority has been working on an ‘eMPF’ rollout, which will make it easier for Hongkongers to access and control their retirement monies, and the Syfe-Manulife tie-up is aimed to provide digitalized advice.
Syfe’s cross-street competitor, Endowus, got its start by being able to bring wealthtech services to Singaporeans’ accounts in the country’s Central Provident Fund.
One product type Arora says he will not build is allocations aimed at wealthy, accredited investors, such as access to private capital. Rivals Endowus and StashAway are trying to establish themselves in this space for their richest customers, but Arora says Syfe’s business is to serve the mass affluent.
Many of these people are first-time investors, so there’s a learning curve. Arora noted that during the boom in 2020-21, lots of fintechs offered access to pre-IPO deals, private-equity funds, or other high-fee products – and a lot of customers lost money. “For us, we’d rather cater to high-net-worth individuals who have the basics in place when it comes to understanding risk and reward,” he said.
There’s plenty of growth potential, given that people in APAC still have the bulk of their liquid wealth in bank deposits.
Looking ahead, Arora says the consumer wealthtech space is in healthy shape. Syfe, Endowus and StashAway are all profitable. The industry has brought transparency, education, and low costs to many middle-class and affluent people, forcing banks to digitize and compete.
Beyond new products and markets, the next big milestone will be when one or more of these startups becomes too big to ignore – in the range of $50 to $100 billion AUM.
That’s not enough to upend the status quo (Singapore alone is a $1 trillion wealth market), but enough to attract potential suitors, such as large financial institutions seeking a digital solution. In five to 10 years, Syfe could consider going IPO, perhaps in Hong Kong or Australia, but the lack of a liquid stock market in Singapore is a barrier.
“Growth funds have exited Southeast Asia because there’s no local IPO market,” Arora said. “That’s hard for any VC-funded model. We’re glad we’re profitable.”
But he says an exit may not be necessary, if Syfe can maintain its current growth trajectory. Arora says 2024 revenues are on track to double those of 2023, and margins remain high. “Do we need an exit if we’re profitable and we can reward our team?” he said.
The VCs will need liquidity events to realize their gains, but there is a secondaries market for venture portfolios. Arora adds that Series B investor, Unbound, has a perpetual fund that, in theory, can hold a position for decades.
“If we build a good business, the exit opportunities will come,” he said.
