How this MIT “physicist” is shaking up Latin America’s finance industry
12th April 2016
trail·blaz·er: a person who blazes a trail for others to follow through unsettled territory
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Leaving the Banking World Behind
Andres Villaquiran left Colombia to attend MIT as an intended Physics major. As a Freshman, he joined a research group at the University’s nuclear reactor and quickly realized that it was not for him.
“I didn’t understand 80% of what they were doing, but in any case I knew that I didn’t want to do it. So I switched majors and ended up doing Mechanical Engineering, Economics, and Management Science. I knew that I wasn’t going to be an engineer, I just really liked the physics aspect of it”
After completing three separate undergraduate degrees at MIT, he left for New York and worked for J.P Morgan as a derivatives trader. After a 3 year stint with J.P Morgan, he left to work at Credit Suisse, which had launched a new venture exploring Latin American markets. Excited by the opportunity, Andres stayed in New York for four more years. Derivative trader by day, Andres enrolled at NYU and worked towards his Master’s in Financial Engineering at night. But an interesting thing happened at the end of his seventh year.
“I was in New York for a total of 7 years. It was a lot of fun but I kind of got tired of the culture. The politics and prestige of the big banks weren’t very interesting to me. A lot of people love that, and that’s fine, it just wasn’t my calling. And at the time, I thought that maybe I was too young and that I wasn’t ready to start a career at a very large place. Nowadays, I think that it was myself telling me that this was not for me.”
Despite the complexities of trading derivatives, Andres wanted something more. He wanted to enjoy his work.
California to Colombia
So Andres left New York and headed to California where he enrolled at Stanford University as a PhD and Masters candidate in Statistics and Financial Math. After a couple of years at Stanford, he went to Colombia for the summer, taught at a top Colombian University, and worked as a financial consultant for Colombia’s second largest bank. Having wrapped up his consulting obligation, he was presented with an intriguing opportunity. Pleased with the work and evaluation that he had provided, the Vice President offered Andres the opportunity to implement his recommendations. However, there was one caveat. He would have to stay in Colombia for one more year.
Given that he had yet to complete his degrees at Stanford, the decision proved to be extremely tough. But after consulting with one of his professors, he ended up committing and moving to Colombia.
Although he was not actively seeking it at the time, this decision provided him with the idea and foundation for his first venture.
“I thought that it would be interesting to stay away for a year and do something different. So I did that and got the idea for my first company. They were willing to pay for the knowledge that I had. Not many people have that kind of expertise — the academic background tied with the experience in terms of financial mathematics.”
So he set up his first company, Risk Management Insight. Founded in 2006, the boutique quantitative consulting company grew to 15 employees by 2013, engaged and consulted with 10 of the top 20 largest corporations in Colombia, and had a client base stretching all the way from Mexico to Uruguay. Despite the success, Andres quickly ran into a major roadblock.
“It was good, very successful, but it was very tough trying to scale the business. The board members and the CEO would always ask to meet with me but I couldn’t be at 50 different places at once. I tried bringing aboard different partners, but they didn’t have the expertise that I had.”
Unable to scale the business, Andres entered into an agreement with PriceWaterhouseCoopers and sold off the business.
Although his passion for quantitative consulting faded over time, one thing never changed: his love for the Bay Area. After selling off his business, Andres moved back to the place that he once called home.
Second Venture, Discovering Alkanza
While Andres was at Stanford he noticed a particular trend in the startup space: All of the Bay Area startups were focusing on social media and gaming. Although gaming and social media certainly appealed to him, he was drawn to another emerging space, FinTech. Having worked in finance for the greater portion of a decade, he saw an opportunity and went for it.
“I started to see one space becoming hugely active and that was fintech. And I was like okay, this looks like something that I know how to do — certainly it’s scalable, let’s see what I can do. I started talking to some professors and some VC’s about what I wanted to do. I had 6 different models that were scalable, each with a different target audience and target market. So I thought that’s cool, I have a company with 6 different softwares”
But this certainly did not turn out to be the case…
“I was told that I needed to focus and that I could only pick one. The first person that told me that, but I didn’t think that it really mattered. Then the second person told me that and I started to listen. By the time that the fifth person told me the same thing, I was like, okay these guys are right, I’m an idiot. So I had to pick one and that was another challenge”
So Andres went back to the drawing board. But how was he to make the decision? All of them had been proven by the market to some extent. Each one of them addressed a different problem and target demographic. The decision making process proved to be extremely difficult. Then a funny thing happened…
“At that point in time, I remember talking to a friend who was not well versed in finance. In fact, he’s a software guy — our CTO. He came to me with an idea. “Wouldn’t it be cool if I had some kind of app or model that would tell me how to manage my money while it constantly evaluated my portfolio and 401K account?””
“So I thought hey, this sounds like an asset allocation problem. I’m all for that. That sounds interesting”
“When the decision came to choose one out of the six models, I was faced with an extremely difficult question: “Do I go for something that’s completely new and risky or go with something that is proven and not be the first person to come up with the idea? Given that it was my first experience in Silicon Valley, I chose the one with less risk”
Having picked out his model, Andres now had to create and fund the product. He very well could have funded it himself or asked one of his family members to contribute but given that his or his family’s perception could be biased, he sought out friends and individuals that knew him from a professional standpoint.
“Maybe what we’re doing wasn’t that cool. I needed to be able to sell it to other people. I needed to be able to see that investors believed that this was valuable. I needed to see that they liked the idea and believed that it could be a business. That would take the bias out of the equation. That meant that people weren’t giving away money for the sake of friendship but because they believed that they would make a good return and that I could build a company.”
“So that’s how I raised the first amount of money.”
And that brings us to the pitch process.
“I obviously had to make it a business case and convince people that they would make a lot money. I asked them to look at what was going on in Silicon Valley, particularly in the Fintech market. Changes in the world are happening in Silicon Valley. They start in Silicon Valley and spread around the world. Everything that you have been doing now, that you were not able to do ten years ago, started in Silicon Valley. The same thing is going to happen in 10 years, 20 years.”
“So I think they really took to that.”
Having secured funding, Andres and the rest of the alkanza team got to work. By the end of December 2014, the team had launched its product.
The company had picked up a little bit of traction. Unfortunately, so had the competition. alkanza competitor, WealthFront, had just raised a $100 million round at a huge evaluation. Additionally, Charles Schwab announced that they were going to come out with something of its own. Seeing that the market was becoming increasingly saturated, alkanza made its first strategic pivot.
“It was good to see that [Charles Schwab] was releasing its own product, it validated our concept. However, the market was going to become increasingly competitive. Whereas we initially saw Wealthfront and Betterment as our competitors, we quickly realized that Fidelity and Vanguard posed the biggest threat — and that was a fight that we were not going to win.”
Opposed to looking outward to the marketplace, Andres shifted his focus internally and began to ask himself the following questions:
“What were our goals for this?”
“What are we going to need to do for this year?”
“How do we minimize risk for our investors going forward?”
This moment of introspection proved to be a defining moment for Andres and the alkanza team. Faced with uncertainty, the team decided to shift target markets and focus it’s product in Latin America.
“We took a different route, we were going to target a new demographic. We had plenty of good connections in Latin America. Despite the fact that Latin America’s asset management market is about a tenth of the size of the US market, the fees are about twenty times higher. So we shifted because there was a bigger chance for disruption.”
So the company pivoted and set itself up to be regulated by the SEC as a registered investment advisor and started developing relationships in Brazil, Mexico, Colombia, Chile, and Peru. Throughout 2015, the company’s MVP changed according to what its users were giving as feedback. As a result, the product that it has now is significantly different. In Andres’s words, “we have a much nicer product.”
In addition to the increase in competition, the emergence of two new trends prompted alkanza to shift target markers. For one, technology has improved to the point where asset management is now available to pretty much everyone — not just high-net worth individuals.
“It doesn’t matter if you have $50,000 or $5,000,000, you can get good advice for cheap. I think that’s one of the things that we entice”
Secondly, millennials are much more tech-driven. People do not go to bank branches anymore.
“The younger generations want to do everything on their smart phones. People are going to migrate from physical locations to mobile. This is something that is going to happen.”
The alkanza platform creates value for users in a variety of different ways. First off, the platform is very intuitive. Contrary to using confusing and complicated financial jargon, alkanza delivers the information in ways that are very understandable.
Secondly, it provides good financial advice at a cheap price.
Thirdly, the platform continuously evaluates your portfolio. When people see their broker statements, they don’t really understand what’s going on. alkanza has customizable analytics and reports that allow people to see their financials in the way that they like to see it.
2015 proved to be an incredibly successful year for Andres and the alkanza team. Faced with uncertainty, the team pivoted target markets, raised funding, and brought its product to the market.
In two years time, Andres built a company with the foundation and structure needed to scale — a problem that proved to be insurmountable in his time with his first venture.
But more importantly, Andres found his entrepreneurial passion again. Every day brings about a new set of challenges, and this keeps him engaged and motivated.
“I am happy with my decision because it has been a great experience. I love what I do. It is awesome. I have a lot of fun. Whether it’s Saturday or it’s Monday, I just don’t really care. It’s the same to me. Its just the way that I’m living.”
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