One of the main innovations tech workers have developed over the past 15 years is to take money from VCs, create a product that costs £1 and then sell it to customers for £0.80. This strategy doesn’t work for long as eventually you run out of (other people’s) money.
However, if you are able to keep getting funding, inflate the company’s valuation and then cash out of the business before that happens, then you can make a tidy profit and build a good career as a start-up grifter. Monzo founder Tom Blomfield, who has never run a profitable business but has made millions cashing out of them, is a good example of this.
A less successful example may be Oval Money, which is part of the same group as OvalX – once known as ETX Capital. Readers may know by now that OvalX has made an agreement to sell its client book to Capital.com. Even that agreement may not be particularly positive, as it appears to be based solely on how many clients make the move, rather than a lump sum.
We’ll probably only know exactly what’s happened at the company in the coming months but we can try to guess some of the details by reading between the lines.
For those not in the know, ETX was ‘acquired’ by Guru Capital in late 2020. Guru was set up in 2019 by Ryan Nettles and Luca Merolla, two former Swissquote executives.
I put ‘acquired’ in scare quotes as it’s not clear how that deal was actually structured. If you look at company filings by Monecor, the company which controls OvalX, the ownership is split 50/50 between Bill Disomma and Paul Gurinas, not Guru or its two owners.
Disomma and Gurinas may be familiar to some readers, as they’re the founders of US prop trading firm Jump Trading.
Jump Trading has its own venture capital fund called Jump Capital. Saurabh Sharma, one of its partners, sits on Monecor’s board. So it seems plausible that Jump Trading’s venture arm was behind the 2020 acquisition of ETX.
About a year after the ETX acquisition, the same Jump-Guru team bought Oval Money. Oval is a savings app that is similar to Plum, which lets you make payments and create savings goals. It now also offers users the option to buy cash equities and crypto.
Like almost every other app that provides these services, Oval was not profitable and according to reporting by Finance Magnates, the company’s assets were bought by the Guru-Jump team for $1.5m after it went into bankruptcy.
The set up of the website created after that acquisition suggested the aim was to combine the two companies and create a ‘super app’ type set up, where you had savings, investments and trading all sitting alongside one another. Another goal would be to cross sell Oval’s existing clients more profitable trading products.
This to me is the most interesting part of what is taking place with the company at the moment. Brokers have been making lots of noise about having a set of services around a core trading product over the past few years. You take something like stocks or a payments product and then cross sell users leveraged derivatives. With all the buzz, it can be easy to think this is a ‘thing’ you should be doing. The Oval debacle is potentially an example of why you shouldn’t.
Most users of these apps are young, low value clients. They don’t have much money anyway and probably have little interest in trading, beyond a brief period during the pandemic when they had some fun punting on crypto and Tesla stocks.
Another factor is the contradiction between saving / investment services and trading products. People invest and save for the long-term, with the goal of (hopefully) seeing a slow but steady return. Trading is a high risk product where most people lose all their money. The outcome of the latter means people are probably unlikely to feel comfortable keeping their savings with a provider of those products.
Swissquote is the largest listed CFD provider which has made a concerted effort to develop one of these products. Called ‘Yuh’, it’s very similar to Oval Money and lets you do things like make payments, buy crypto or trade stocks.
Read through Swissquote’s financial reports and you’ll see a breakdown of how the company makes money from its business divisions. That is until you get to the section on Yuh. There you are told about the product features and some usage stats, but nothing about how much money it costs or revenue it generates. This is usually a bad sign.
If we assume the product is unprofitable on its own, it’s still plausible that Swissquote could keep eating the loss until that turns around. Alternatively, it may be loss making but shift enough clients over to CFDs to offset those losses.
But if neither of those things are true then…what’s the point? In fact, what is the point of any ‘fintech’ that offers payments and savings if they can’t actually make money?
An assumption has evolved over the past few years that because so many companies like this have sprouted up, usually with better UX than traditional banks or other financial services firms, that they are the future and thus must ultimately be good businesses. Today many of these startups feel like gimmicks. They make cool-looking apps that are less clunky to use than their older competitors, but don’t operate viable business models.
And that takes us back to the point made at the start of this piece. Let’s assume that Oval is going to go under, unless it finds a buyer or something else. This is obviously terrible and you have to feel bad for anyone that ends up losing their job as a result. It’s also easy to sit on the sidelines and make it seem as though setting up a broker is an easy thing to do. Clearly that’s not the case.
But it’s still hard to understand why you would take on a loss-making product, with no sign of change, and believe that it was going to make you money.
What’s even less obvious is why you would let the people from Oval have any role at the newly formed OvalX. Oval’s founders had never worked in the retail trading sector and their prior experience seems to have been setting up a crowdfunding company which failed and then setting up Oval, which went bankrupt.
All the signs indicate they belong to the ‘sell £1 for 80p’ school of ponzi tech that emerged in the era of ultra low interest rates. The goal is less to make a sustainable business and more to create the allure of success, before cashing out by handing the bag to any sucker willing to pay. Unless you’re hiring for immense hubris or delusions of grandeur, these people aren’t going to be of much use to you. And as we are likely heading into a recession, you can expect more of them to get wiped out in the next couple of years. Buyer beware.