‘Data-driven investing is the future in Pakistan’

An interview with the co-founders of Investors Lounge, the analytics provider of financial markets

Investors Lounge is a financial markets analytics provider that emerged as the winner (within banking, insurance & financial category) at the recent P@SHA ICT Awards 2018. The start-up was recognised for its business performance, industry expertise and quality of clientele.

Recognising the growing traction of this financial information website that generates insights for investors through intelligent data and visualization capabilities, BR Research recently sat down with its three co-founders: Baqar Jafri, Sennen Desouza and Hammad Hashmi. Below are the edited transcripts of that sit down where they talk about their business model, the demand prospects of their market intelligence products and services, and the overall landscape of Pakistan’s start-up culture.

BR Research: Can you walk us through your portal? What’s the idea behind it and what kind of information does it offer to investors?

Baqar Jafri: When you have got a lot of information pouring in from ten different directions in a market which is not very mature, you end up acquiring a lot of information from informal sources, which often impairs your investment decisions. Our platform helps reduce information asymmetry for retail as well as institutional investors in Pakistan and abroad.

The platform provides a wide array of information to investors: from informing which stock or sector is driving the market or being driven by the market on daily basis to comparative technical charts of all stocks, sectors and indices; from daily news feed and investments advice published by nearly all brokerage houses across the country, to sector-wise analyses of foreign and local portfolio investors and other trading and settlement related information such as margins and future positions, trending stocks, insider and off market transactions and so forth. All of this information is presented in a user-friendly fashion so that investors don’t waste time on gathering information and instead focus on what really matters: making a decision.

BRR: What makes your product different from your competitors, local or international?

Sennen Desouza: In frontier and emerging markets, finding in-depth financial data and analytics on stocks, mutual funds, industrial output, and economy is very difficult. Countless hours are wasted aggregating mediocre insights and to gain corporate access. This is the problem faced by over 1600 institutions that invest in Pakistan’s capital market, firms which include brokerage houses, asset management companies, insurance companies and family offices. Investors Lounge provides in-depth financial data and market monitoring tools to these investors to help them make better financial decisions at a competitive price. So if you can’t afford data terminals provided by international companies, and want much better in-depth analytics on Pakistan than those terminals, Investors Lounge is the answer.

BRR: Why is now the time for your company to exist?

Hammad Hashmi: The global economic growth will be centred around frontier and emerging markets specially in Asia. The demand for data-driven investing will grow at unprecedented pace in couple of years. We believe that not only high net worth individuals and institutions, but millennial will also adopt data-driven investing tools to make better financial decisions. If proper investor education is provided, data-driven investing will grow exponentially, and so will the demand of our services.

BRR: Who are your clients and what’s your subscription model?

Sennen Desouza: We have got both high network individual and institutional clients who have subscribed to our web-based portal. We also have some institutional clients who have approached us for some boutique research, which are of course confidential bespoke client specific research. However, our portal can also be very useful for media organisations and independent researchers that cover markets since our portal provides both information and analyses in a timely and media-friendly manner. We have various subscription models for various clients and their needs.

BRR: You are quite right when you say that Pakistan is not a mature market. How can this portal bridge the gap?

Baqar Jafri: Brokerage houses generally avoid giving a sell call on stocks, whereas some of the biggest trades in the market are broker-linked or owner-linked insider or off market transactions. Our portal tracks those transactions through official data releases and puts it on the map so that investors can read what’s happening to the stocks they are interested in. That’s one way how our portal is reducing market inefficiencies.

Second, we are soon going to start a tutorial on technical analyses in particular, and data-driven investing in particular. These will be video-based tutorials tailored specific to the needs of retail investors; we will not be giving investment advice since this is not our mandate, but we will teach people how to read various kinds of reports on fundamental and technical analyses.

There are two kinds of new investors in the market. The first kind is one who invests based on tips or other informal sources of information, and sooner or later they get their fingers burned and eventually never return to the market again. The other kind either starts investing by first learning about the market in the first place or decides to learn about the market after initially getting their fingers burned. Our tutorials will cater to the second type of investors and consequently we hope to convince the first kind of investors as well that they should first learn about the market before they make their investments.

Nobody can beat the market all the time; you win some, you lose some. The market has the tendency of humbling everyone. But when you make educated decisions based on calculated risks then you are less likely to get dejected by the market and stay in the game. Ultimately, our vision is to increase investor education and promote knowledge-based investing in the country.

BRR: What other features do you plan to add? What would be the next logical business area for expansion?

Hammad Hashmi: The near-term goal is to onboard all top institutions in Pakistan onto the platform. This would allow each market participant to benefit from not just high-quality actionable analytics but also from seamless connectivity and crowd sourced wisdom. That should be a win for the entire industry.

We’re evaluating different options for the longer-term plan, and there is genuine interest shown by both local and international potential partners. Our plans include expansion into other emerging market territories where we’re well suited to serve pain points that are similar to Pakistan’s. Also included in the plans is the development of a cutting-edge trading terminal that can replace the legacy terminals available in the market. Also, our clients will soon be able to track the fund managers’ reports of all asset management companies.

BRR: What lessons can you offer to those who are thinking about launching their own start-ups?

Sennen Desouza: Just a couple of thoughts that we always share. Choose your investor wisely. All that glitters is not gold. Make sure, you are not trapped by any fraudster selling you big stories. And don’t lose too much equity in the seed round, that too for a small amount of money. It’s going to haunt you later.

BRR: Can you walk us through the legal landscape that affects Pakistan’s start-up industry; what are the key things that new start up founders must take to safeguard their interests?

Hammad Hashmi: As entrepreneurs, we’re so focused on business operations and financing, we often neglect the legal protection our businesses require. I believe there are three core legal areas that founders need to be educated on and be facilitated with, which should enable swift and seamless growth of the industry.

The first is protection of intellectual property, which in my view, is the most important legal aspect that goes unnoticed. Without adequate provisioning for intellectual property protection, there will always be insecurities that restrict ideation that can result in genuine innovation.

Second, pertains to business type registration. Most founders are still not equipped with the knowledge of which business type best suits the stage their start up is in. Not every start up needs to remain a sole proprietorship, neither does every start up necessarily have to be incorporated so early. There are demerits of both that could be easily avoided if there is better legal guidance available to these start-ups. And third relates to term sheets and agreements, where an understanding of the clauses that should go into term sheets and the rights that founders can exercise, is unfortunately missing.

BRR: A lot of people in start-ups struggle with the idea of how to share equity. Someone who has an idea may not have time to do the operations; someone has the idea and can put it sweat equity but does not have the finances or the seed capital - and so on and so forth. How does one go about equity sharing - is there a formula or the guiding light?

Baqar Jafri: Partly it’s because of the lack of understanding of the options available and partly it reflects a fear of tackling difficult questions at the beginning that sees most cofounders commit to fixed splits – equal shares of the company. While there can be no one formula that fits all situations, identification of value addition, committed capital, years of service promised, and similar variables should give the founders some sense of the equity that can rest with each founder.

BRR: What is the biggest threat to your business, and what is the biggest opportunity?

Hammad Hashmi: Lets first look at the opportunity at hand. There is little doubt on the long-term story of Pakistan. The economy is stabilizing gradually; efforts are being made to development depth in the market in terms of both products and number of market participants. Foreign flows should be better for the country that not so long ago seemed like the poster child for emerging market fund managers. As efficiencies keep improving, institutions are going to find it harder to capture alpha using conventional means.

This is where we believe all institutions will have to adopt a data-driven approach resulting in increased appetite for high-quality analytics and market intelligence.

And precisely because this is such a massive opportunity, there is always threat of competition. But if there was any threat to choose from, this is the threat that we would always need to keep on making genuinely meaningful improvements to our products.