London-based fintech startup Lightyear by Martin Sokk and Mihkel Aamer is taking the wraps off the investing world – making it more transparent while empowering people to invest their money in the world’s biggest companies, from Apple and Tesla to Spotify and Alibaba.
It is an incredibly ambitious plan. So we at Relevant Founders Podcast sought out Martin to ask him about the birth of his “child,” the difficulties he faced when developing for European markets, and the pitfalls he had to bypass.
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Investing is hard work, so people need a guy to seek advice from every now and then, right? Martin and Mihkel, when working for the money transfer service TransferWise, before their Lightyear adventure, were constantly bombarded by their clients with questions about where they should invest. But, at the time, they couldn’t recommend somewhere good enough because, actually, there wasn’t anywhere to go.
“We have always failed to understand why investing in Europe has to be expensive, complicated, inaccessible, and ridden with hidden fees. Unsurprisingly, most people feel intimidated by the investment world. Professional and experienced investors have good options with clear pricing and best-in-class tools, but ordinary investors don’t have that.”
“Let me give you an example. If you have a million dollars, life is more pleasant, prices go down, and people take better care of you. Service will be faster and more competent. If you have $100, not many people care about you. So I think the biggest and coolest thing is that technology can equalize that field. It doesn’t matter if you have a million dollars to invest or $100; you should have equally good access to service and pricing.”
Martin and Mihkel decided to create a service that could connect all global markets so that people could use them in whatever manner they wanted. To enter 19 new markets, including the Baltics and much of Western Europe, Lightyear has raised $25 million in a Series A funding round led by US venture capital firm Lightspeed and attracted other well-known sponsors, particularly the Virgin Group, whose sole shareholder is Richard Branson.
While the European market seemed like a good place to start, it wasn’t without its challenges. In all of Europe, except Estonia, the share of household-held assets invested in equity is far below 50%. In Germany, that number is 11.4%, in the UK – 10.4%, and 22.2% in France. In the US, that share is around 37%, highlighting a significant difference in wealth management.
“The European investment world is less developed, and the delay between the US and Europe is roughly 20 years. In the US, you have a handful of markets; you invest in dollars, have the same regulator, kinds of payments, popular companies prominent worldwide, and whatnot.”
“Compared to the US, the European market is immature due to high fragmentation, stricter legislation, lower disposable income, etc. Every country has its own taxation, payment methods, language, etc. You must understand the local culture, rebuild the system effectively and repeat the business case.”
The first MVP was a fairly mature product created with US instruments but with a European mindset. The Lightyear team created their MVP within nine months and launched their product in the UK. The choice fell on the UK because it is the largest English-speaking European market, and the partners had opportunities to work together.
Less than a year after launching to UK users, Lightyear has ramped up its potential user base by magnitude, tripled its stock universe, and established a social investment feature – Lightyear Profiles.
We were curious about how many employees were involved in the development and whether they attracted anyone from outside.
“We had everything in-house. In the early stages of Lightyear, we found experienced people in our field and brought them in, which helped us grow at a ‘lightning’ pace. We understood what needed to happen there and what problems we would likely face over the next five or ten years.”
“We have built a team in a way that we’re not top-down management; we hire really smart people, and they will decide their own path. We are hiring quality over quantity. That helps us quite a bit.”
“Hiring is always hard. It’s not just about going out and finding people. It’s more about finding the exact people you want to work with and who will be willing to work with you at the early stages of a startup. So I think we have been rather lucky that we have this incredibly strong team, and our success has helped to hire the next set of superstars because structurally, we want to work with strong people. However, that takes time.”
The goal of Lightyear is to provide a simple and approachable way to invest money globally without unnecessary barriers and fees. Today their main source of income is a flat 0.35% on currency conversions for trading in foreign shares. But Martin says the firm plans to eventually diversify its revenue stream with additional features, including a paid subscription service.
“I spent roughly five years trying to figure out how to scale the company, and during these five years, I was responsible for the product. I realized that it is important to delve into and understand how to manage a company and be a little closer to customers. Then, you’re not wasting time on stuff people don’t need.”
“We build a product that helps customers make the right decision. But software problems are often an order of magnitude harder as there is no blueprint of what you need to do next; nobody has built that.”
“So I think the challenge for us is first to make the infrastructure. The second is how everyone, whoever you are, wherever you are investing, must know your risk level and have the confidence you are making the right decision.”
“In the early stages of a startup, you have an idea that quickly becomes complicated once you start exploring it. Only to then realize that you need to simplify it or that it won’t work at all.”
“You’re never in an ideal place when building a startup. You’re either too early, you have no idea what to do, or you have no financing, etc. But if you understand how their markets are doing, the instruments companies are buying, and your portfolio risk level, you can explore and understand the world better.”
“We have seen many different kinds of downturns, the markets going up and down and sideways. And so people have started thinking about how to protect themselves from future uncertainty.”
“Suppose inflation comes in, your money loses value, and you don’t know what to do. If you’re at a stage where you have nothing, it’s rather scary. No one knows what will happen in the next couple of years. And the next thing we have to do is to remove the anxiety from the process.”
“We see investing money as something fundamental. It shouldn’t be exclusive to an elite VIP club with insider knowledge. We want to give everyone, regardless of how much money they invest, access to a full suite of products to help them in their future.”
Being successful often means learning from those who have already achieved their goals. So we asked Martin what advice he could give aspiring founders to help them get started.
“Launch as fast as possible. If you move fast (faster than everyone else), you will make mistakes, but you will quickly learn from those mistakes. You shouldn’t concentrate on problems and traps, as many might not happen. And take the time to attract good people.”