Tokyo-based fintech Visual Alpha has built
a business servicing Japanese asset owners and asset managers, and now it wants
to expand overseas – but that will require more funding, says co-founder and
CEO Jeffrey Tsui.
Visual Alpha automates reporting functions
for buy sides, from cash management to data aggregation. Its fastest-growing product
is for alternative investment classes, such as real estate, infrastructure,
private equity and private debt.
“Asset owners are allocating more to
long-term, low-liquidity assets, which comes with an increasing demand for
monitoring the portfolios, reporting, and analytics,” Tsui said.
Even large firms still tend to track and report these with PDFs or Excel spreadsheets.
Reporting redo
Visual Alpha processes these using
artificial intelligence, including rules-based text parsing, so that clients can
simplify the process and eliminate manual work.
It has templated the most common data points of reports so that a client’s customers (say the asset managers in a fund of funds or on a consultant’s list) can report directly to Visual Alpha, bypassing the intermediary. As more customers use the platform, their asset managers find it easier to work with the same template.
“We do the dirty work,” Tsui said.
The startup is also working on an API service, although only a handful of users have the internal tech capability to use these, Tsui says. Proceeds from new funding would go to marketing API subscriptions.
Funding needs
Tsui is a former mid-tier executive at
State Street and Wellington Management in the US, and a salesman for Boston-based
AI fintech Kensho Technologies. He launched his own business with backing from
friends and family, including senior people from State Street, Wellington, and
Goldman Sachs Asset Management. A Japanese venture capital firm, Incubate Fund,
has also backed the company.
Visual Alpha has raised about $2 million and
is valued at around $10 million, Tsui says.
To expand internationally, expand products and boost sales will require another round of funding, which he hopes to complete early next year, with a goal to raise $4 million. Despite difficult funding conditions for startups worldwide, Tsui believes he can double his firm’s valuation.
Early successes
Visual Alpha has scored early successes
with funds-of-private-equity funds as well as mandates from global asset
consulting firms such as Mercer and Nomura Research Institute.
These consultants act as gatekeepers for the world’s mainstream asset owners, such as pension funds. They select managers and advise institutions on how to allocate funds. In Japan alone, they each represent dozens of pension funds and other investors, each of which invests in a range of asset managers. That ends up involving over 1,000 mandates to asset managers, from international giants like BlackRock to local boutiques – which is a lot of reporting and managing cash flows among LPs and GPs (the investors and managers of private equity funds).
Although Visual Alpha is still in the process
of onboarding the broader universe of funds involved in consultant or fund-of-fund
clients, it is still not about to break even.
“Developers cost a lot, the B2B sales cycle
is long, and the status quo is hard to disrupt,” Tsui said.
In Japan, many pension funds are managed by semi-retired officials from banks or corporations. These people are usually not interested in technological change. Obvious targets of automation remain stuck in the 20th century.
Competing abroad – and at home
Visual Alpha is also coming under pressure
from US-based competitors such as Kensho. The market in the US is bigger, so
these fintechs tend to specialize in even more niche areas of buy-side back-
and middle-office automation. So they do not have the breadth of products that
Visual Alpha offers, but they might be stronger in individual products.
Tsui says his advantage is that he knows
the Japanese financial system and its quirks. The finnicky nature of Japanese
clients means he has to ensure a reliable and accurate service.
The challenge is getting around onerous
labor laws. Companies in Japan find it difficult to fire people, both for legal
and cultural reasons. If their reporting work is done by full-time staff, they
won’t digitize the process – especially if the overall business is not growing,
and there’s no where else to place staff.
But if the business is growing, and it
relies on contractors to handle reporting, or are understaffed, then Visual Alpha
has a credible pitch. “If their reporting remains manual, they can’t scale
their business,” Tsui said.
Similarly, Tsui feels confident about
expanding to overseas markets where Japanese asset managers have a presence, or
Japanese banks have a branch.
