New European financial regulations requiring fund managers at investment firms to pay banks for research and trading services separately could open the door for new entrants in the professional advisory services marketplace.
The rules, which were approved in 2014, but only took effect in January, are proving to be a boon for four MIT students who launched a company last year to try to grab some of the market.
DeepBench, founded by Devin Basinger, Yishi Zuo, Derek Hans and Nikhil Punwaney, is proposing some novel business model solutions to address what the MIT students see as flaws in the existing market — particularly around the use of expert networks in financial advisory services.
Expert networks are communities of experienced professionals in a given field. Fortune 500 companies, hedge funds, private equity firms and other entities rely on individuals from these groups for their insights and expertise. The biggest company in the expert network industry, Gerson Lerman Group (GLG), has nearly 50 percent market share and was on track to reach $400 million in revenue in 2016.
But GLG has had its share of troubles. The company played an integral role in providing the expert that passed confidential information to an SAC Capital trader, which was used as evidence in an insider trading case against the firm and its owner, Steven A. Cohen. The hedge fund ended up paying a record $1.8 billion in fines to the SEC (they did not admit wrongdoing in the case).
There is a significant opportunity to disrupt the expert networking space. As more experienced workers retire, some may want to continue putting their skills to use, albeit in a reduced capacity. Being a part of an expert network allows them to be available for clients who request their expertise in a flexible, convenient capacity. Facilitating this specialized knowledge sharing is a billion-dollar market for the taking.
Aside from established players like GLG and its European competitors, AlphaSights and Third Bridge, other startups like Clarity, Slingshot Insights, Catalant (formerly known as HourlyNerd) and DÅ«cÅ are also looking to transform the way expert networking is done. GLG is known to charge a group of four within a firm $100,000 for basic access to their network for a year. In comparison, these startups have different approaches and business models to improving the way clients access the expertise they need. Their efforts reflect two main segments within the expert network market: expert calls and project-based work.
DeepBench and Slingshot Industries are focusing their efforts on expert calls. DeepBench launched its current service in March 2017, which uses its 'œtechnology-driven, human-assisted' platform to connect individual clients with available experts for a 30 to 60-minute conversation at an agreed-upon rate. In addition, the startup does not require 'œlearners' to sign long-term contracts or prepay, unlike other firms, allowing for greater client flexibility. Slingshot Industries matches groups of clients with similar interests to an expert to answer their questions. The group would crowdfund the cost for chatting with the expert.
Catalant and DÅ«cÅ have aimed for matching clients that need long-term projects completed with the relevant experienced contractor. These clients are looking for experts who are interested in extended-duration work. Catalant leverages its algorithms to quickly match prospective clients with the experts they are looking for based on the former's search criteria.
Their goal is to make this process seamless, so more experts and clients will feel enabled to collaborate outside of a conventional consulting framework or contracting arrangement. DÅ«cÅ appears to take a more conventional approach to connecting clients and experts. The D.C.-based startup vets its pool of experts before offering them up to potential clients. Like Catalant, DÅ«cÅ uses matching algorithms to match clients with project work needs to experts ready to assist them.
As investors seek information to keep their competitive edge, and firms need outside help in solving internal problems, on-demand access to expert networks will become necessary. DeepBench currently has more than 1,000 registered experts for their closed beta platform. Currently, more than 20 clients are using the service. Most are top consulting companies, investors and product designers.
'œWe are focused on finding quality high-fit advisors right now instead of increasing the volume we can have available for clients,' Basinger said.
With a shift in E.U. financial regulations, expert networks are using their momentum in the Asian and U.S. markets to establish themselves in Europe. This specialized knowledge sharing can be shaped by startups like DeepBench as competition between firms continues to intensify.