FOLIO Revolutionizes Asset Management (Part 1)
An interview with the CEO of a FinTech Startup (Part 1)
The importance of asset management has been emphasized for some time, and we’ve all heard the necessity of ‘asset formation over savings’. It’s also true that many of us feel that investing is too difficult and complicated. Changing that environment is FOLIO, the online brokerage platform that makes asset management easy and fun, so the user can continue to engage. A beta version has been made public since November 2017. FOLIO has been attracting plenty of attention as an independent domestic stocks stock brokerage firm. After all, it's the first online brokerage firm to open in ten years.
In January 2018, 7 billion yen in funds were collected during the series A2 round, with third-party allocation of shares underwritten by LINE, Goldman Sachs, Dentsu Ventures, Mitsui & Co., SMBC Venture Capital, DCM Ventures, and Draper Nexus Ventures. The company reached a total of 9.1 billion yen since the seed round, two years after it was established.
The value of money is slowly but surely becoming more relative; the concept of value itself has diversified greatly to the present. FOLIO's mission is to realize "barrier-free asset management" by creating and popularizing a financial platform for future generations that interconnects these different values.
CEO Shinichiro Kai founded FOLIO in December 2015 by taking advantage of his ten-year experience of being a trader, and has kindly answered the questions we all want to ask: what are the reasons behind all the attention your company is receiving, and what are your plans for FOLIO?
Why do you think you managed to reach 9.1 billion yen in funds only two years after FOLIO was founded?
I had a very talented team, and the investors highly valued our product. We have recruited skilled engineers who are chief technology officers at other startups, and one of the partners at McKinsey is helping with the business side. We are also pursuing the ultimate user experience with our Chief Design Officer Hajime Hirono. A simple, easy-to-use user interface is absolutely necessary for our mission: barrier-free asset management. Our business partnership with the communication app LINE will have a synergistic effect, and their vision for a “perfect design from the user’s perspective” resonated deeply with us.
The target market size is almost as important as the team and product as an indication for market capitalization. In Japan, there is a trend of non-financial firms entering the financial sector, and the reason for this is that those firms and investors are aware that the potential of the financial sector in Japan is greater than any other country. In September 2017, Japan’s household financial assets amounted to a record-high 1832 trillion yen, consisting of a 1000 trillion in cash and deposits and the remaining 800 trillion in shares and other assets.
As the average lifespan continues to increase and the issue of Japan’s pension fund becomes more urgent, the government is likely to bolster its emphasis on “investment over savings.” In an age where we need to make “money to earn money for us,” the value of a straightforward next-generation brokerage platform is indispensable for those with no experience in investing.
FOLIO is creating a new platform for exchanging “value”, which is no longer determined by cash alone. How did you get this inspiration?
I started coming up with FOLIO’s concept in 2014, which was a year before it was established. FinTech was already becoming a major movement in the US. What struck me was how the market value of Lending Club, which operated an online marketplace connecting borrowers and investors for peer-to-peer lending, had a market value of one trillion. Also, the use of robot-advisors, which provide assistance for asset management based on algorithms, was becoming ubiquitous in the US. In contrast, FinTech was still in its infancy in Japan, as automatic accounting and asset management services such as Money Forward had only just been released. Since Japan’s market potential was greater, and with the success of FinTech in the US, I was certain that a powerful surge of innovation was going to come. I wasn’t going to miss the opportunity of making FOLIO the first mover.
Users of FOLIO can diversify their investment by choosing themes depending on what they are interested in or what they want to support and investing a minimum amount of 100,000 yen per theme. This style is very unique.
The user can choose from various categories, ranging from next-generation materials and virtual reality to eSports, hot springs, Kyoto, and cosplay, and make investments as if they are shopping. The portfolio for each category consists of ten promising companies selected by FOLIO. The allocation ratio of individual stocks is calculated using the optimal dispersion ratio determined by FOLIO's original algorithm. Therefore, users can expect investment returns while the risks are relatively low compared to investing in one particular asset. This level of service cannot be provided by other companies, and of this we are very proud. We plan to make the service even more diverse by providing more categories, such as baseball teams and universities, so that the users will experience a feeling of familiarity.
Was the idea of theme-based investment firmly confirmed when FOLIO was founded?
We already had a mock-up of the product before I founded FOLIO. The mock-up was really useful for communicating with investors before and after the company’s establishment. Mock-ups are really important because presentations of financial services tend to include a lot of difficult jargon, while the investors must intuitively determine whether the startup would be successful during the first meeting. Mock-ups are eye-catching and are able to show the product’s value to the investors in a straightforward way.