Expert Answer:Case analysis

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Research should not be sitting as a bound book on the shelves of a research department; rather
it has to be made available to agencies to tap on its true intended usage. Our value proposition
is a single platform for enabling investment research, and this is invariably the most efficient way
to do it.
– Raghav Kapoor, CEO Smartkarma
In February 2018, Raghav Kapoor, CEO of Smartkarma, a Singapore-based company providing an
independent platform for investment research, was busy reviewing the company’s performance over
the last few years. In November 2017, Smartkarma had been able to raise US$13.5 million in a
funding round led by venture capitalist Sequoia Capital. These funds were being used to expand its
offices outside Singapore. Kapoor was confident that the offerings of his company would be attractive
to financial investors and asset managers across the globe.
Smartkarma’s expansion plans were in tandem with the new Markets in Financial Instruments
Directive (MiFID II), launched by the European Union (EU), which essentially required investment
banks to charge for research, as opposed to bundling research with trading commissions and other
service fees. The new regulations were effective from January 2018 in the EU. This was indeed good
news for Smartkarma, as the new rules meant that asset managers in banks would now have to budget
for research for the first time.
Kapoor wanted to ensure that Smartkarma was able to tap on the opportunity arising from the
introduction of new regulations. However, he also recognised that ease of entry, informational
efficiency and simplicity in replicating an independent investment platform made it extremely
difficult for his business to beat the market on a sustained basis. Would focusing on the quality of
research and transparent payment be enough to make Smartkarma the choice for financial investors
and asset managers of large banks? Moreover, was subscription pricing an effective business model
for Smartkarma?
Regulations and Industry Implications
Traditionally investment research had been part of a bank’s sales function. After the 2008 financial
crisis, new regulations in the banking industry required investment research to be a separate entity
from sales. Big investment banks looking to slash cost centres put large research departments at risk.
There was an increasing trend towards outsourcing investment research instead of having an internal
This case was written by Professor Reddi Rayalu Kotha and Lipika Bhattacharya at the Singapore Management University.
The case was prepared solely to provide material for class discussion. The authors do not intend to illustrate either effective
or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying
information to protect confidentiality.
Copyright © 2019, Singapore Management University
Version: 2019-04-01
Smartkarma: Market Opportunity in Investment Research
research team, or hiring research analysts’ services as and when required. Smartkarma utilised this
opportunity and came up with an online research platform, a solution that would allow independent
analysts to provide research services as and when asset managers needed them.
In 2017, the EU introduced MiFID II, which laid out stringent regulations to guide banks on pricing
research and execution services separately when serving EU manager clients. The new regulations
required all research expended by an asset manager to be ‘paid for’ explicitly, rather than ‘bundled’
with brokerage commission. Any research delivered without an attached price tag was considered
illicit by the regulators. In addition, the research had to fulfil additional definitional criteria to be
considered a ‘paid’ offering. Investment research had to be ‘substantive’ and ‘provide value-add
views that could inform the investment decision’. 1
There were two commonly used methods in the industry to fund investment research. One was the
commission sharing arrangement (CSA) to fund a research payment account (RPA), and another was
the client contribution method (CCA), also referred to as the “Swedish Model’ which involved a
separate charge to assets under management (AUM) for the asset manager to fund the RPA. 2
However, putting a price tag on research did not have a standardised methodology. A subscription
plan was a plausible solution, but again, did not on its own guarantee an appropriate monitoring
capability to track consumption behaviour (refer to Exhibit 1 for Payment Regulation for Investment
In a survey conducted in 2013 by CFA Society UK, 60% of participants had agreed that sell-side
firms in investment research should provide a schedule of prices for different elements or levels of
research provision. Moreover, 59% of participants in the survey also agreed that research commission
spending would go down if sell-side houses introduced a more transparent pricing model. 3
There were several potential benefits of regulatory changes pertaining to investment research funding
that independent platforms like Smartkarma could tap. It was expected to drive an undeniably
effective market with even more intensely evaluated, quality research. Buy-side firms previously
receiving duplications or low-quality research could now expect more value-add research as they
could explicitly choose to pay for good research only. This could provide an opportunity to
independent research firms to fill in the gaps. Kapoor elaborated,
In the financial services industry, technology is a key driver of change, which is changing margins
across financial services. And the second driver is regulatory changes. Asset managers had been
relatively protected from regulations in the past, but not anymore. After the 2008 financial crisis,
prevailing business models in banks were becoming unviable – which is why regulatory changes
became vital in driving change.
In a digital market, you do not have intermediaries; the only intermediary is the technology, the
API; and this built better transparency in the system.
With investment banks and brokers cutting down research teams given the pressure from falling
profitability, there were a growing number of independent research houses cropping up worldwide.
In 2007 there were 32 independent research houses nominated by asset managers; however, by 2016,
MIFID II: A new paradigm for investment research, Investor Perspectives on Research Costs and Procurement, CFA Institute, 2017,, accessed February
“The Future of Investment Research Post-MiFID II”, Bloomberg Intelligence, October 10, 2017,, accessed January 2018.
Redress in Retail Investment Markets, International Perspectives and Best Practices, CFA Institute,, accessed
February 2019.
Smartkarma: Market Opportunity in Investment Research
that number had risen to 53 (refer to Exhibit 2 for market share for independent research regionwise). 4
The genesis of Smartkarma
Co-founded by Singapore-based financiers, Raghav Kapoor, Jon Foster and Lee Mitchell in 2014, the
idea of the Smartkarma platform was conceived in the attic of the home of one of the co-founders.
All three founders had worked together at Aviate Global (Asia) prior to its acquisition by Religare
Capital Markets. Launched in 2015, Smartkarma was envisaged as an independent platform for
investment research and research unbundling.
Kapoor recollected,
For the first three months of operations, all three founders invested their personal capital to cover
the cost. A year later, we went on to raise substantial capital funding from investors. By
September 2016, we had over 70 contributing firms, 300+ individual insight providers and more
than 120+ institutions active on its platform.
Smartkarma had received positive reviews from the financial press. It had been described as the
“Spotify” of Asian investment research by Bloomberg. In 2016, the Smartkarma platform had won
the Best New Technology Product award for trading and execution by Futures and Options World
magazine. 5
In early 2016, French bank, Société Générale, formed an agreement with Smartkarma, to use its
curated online platform for investment insights focused on the Asian markets. Under the global
agreement, Société Générale would provide its institutional clients access to the platform.
In 2017, Smartkarma opened its London office to grow European buy-side research base. In early
2018, the company opened a New York office to expand its US client base.
Solution Platform
The Smartkarma platform provided investors expert opinion on timely themes and topics across
companies, industries and markets in Asia with its cloud-based platform. Insights provided by the
platform could be customised to individual investor needs and updated in real time. The coverage
included large-cap bottom-up, frontier markets, small, mid-caps, and in-depth event-driven/IPO
analysis, to help its client base generate new trade ideas. The company’s market-adaptable business
model met the regulatory requirements of new directives like MiFID II.
Buy-side clients accessed Smartkarma’s platform by paying an annual subscription fee. Research and
investment analysts (insight providers) posting articles on the platform could generate revenue for
themselves based on the consumption of their articles. Clients (investment banks and other banking
departments requiring insight reports) could choose to use a search-and-sort feature available on the
Smartkarma platform which had predictive capabilities. The search option could filter content
Chloe Cornish and Robin Wigglesworth, “Boutique Research Groups Set to Gain from Charging Shake-up”, Financial Times, March
2017,, accessed January 2018.
Smartkarma Press, “FOW Asia Honors Smartkarma with Best New Technology Award”, Smartkarma, September 23, 2016,, accessed February
Smartkarma: Market Opportunity in Investment Research
published on the platform and create a customised reading list for the users based on their specific
fields of interest. The platform had in-built features to help investors access a wide range of global
analysis content on Asian markets and improve their research spend and enhance returns on
The solution had several advantages for both buy-side clients as well as sell-side insight providers.
When insight providers got noticed by organisations for their articles, they could potentially be hired
for bespoke and premium research requests. Asset managers had the flexibility of accessing and
comparing reports from a pool of insight providers (refer to Exhibit 3 for Trending Insights on
Smartkarma platform).
The platform used an algorithm to help decide how much of the revenue each insight provider would
get every month. The number of times a research note was viewed was a key metric for revenue, but
not the only one. Smartkarma also monitored how much client engagement an insight provider had
over its messaging network (refer to Exhibit 4 for the revenue model for individual insight providers).
As at 2018, client subscribers to the Smartkarma platform paid an annual subscription fee of
US$ 7,500 per user per year to access all material available on the platform – rather than paying at
the point of consumption – and could use the platform’s search and discovery tools and analytics
capabilities. They could also participate and contribute to discussions on the platform and contact
individual research providers and collaborate with providers as well as other consumers.
Supplementary features like alarms and contextual features for creating predictive reading lists were
also available to the subscribers. Client subscribers could also avail higher level services such as
phone calls with insight providers. Moreover, the platform conformed to the research requirements
of MiFID II regulations which necessitated research unbundling and pointed towards regulatory risks
in research valuation, and advocated transparency of research content consumption. 6
Operational Methodologies
Sell-side users of the Smartkarma platform were paid based on revenues generated. About 70% of
the revenue bucket was distributed on a monthly basis, and each insight provider received a share of
the revenues as calculated based on the quantified value add (QVA). The QVA calculation
methodology captured all on-platform interactions and grouped them into engagement and
collaboration metrics. The metrics were weighted to adjust relative frequency to get an even balance
between low and high-frequency activities. They were then aggregated into engagement and
collaboration points for each insight provider. The engagement and collaboration points were then
compiled into a single metric, the QVA. Adding the monthly QVA’s for every insight provider gave
the total QVA, and helped provide every insight provider’s pro-rata QVA share. A three-month
rolling QVA share was then computed, which smoothed out periods of lower activity and provided
consistency of payments (refer to Exhibit 5 for QVA Metrics). 7
Smartkarma Challenges Traditional Investment Research Services, Analytics, Data Delivery, Cloud & Managed Services, MiFID II,
Research, A-Team Insight,,
accessed February 2019.
Smartkarma, Insight Providers, Quantified Value Add,, accessed January 2017.
Smartkarma: Market Opportunity in Investment Research
Subscriptions could be brought individually or by a team. The per-user plan provided access to simple
monthly pricing of US$625 per month that was upgradable anytime. This was an annual plan that was
billed quarterly upfront and provided unlimited access from multiple devices, real-time discussions
and messaging, analytics and data tools, and customer support.
The team-wide plan was priced at US$625 a month and was charged per active user, and the per-user
price dropped as the active user base grew. Also an annual plan, the team-wide plan was billed
quarterly in arrears, with unlimited access from multiple devices, access to a real-time discussion and
messaging tools, analytics and data tools, a dedicated account manager, team collaboration features,
dedicated compliance dashboard, consumption analytics and reporting tools.
Smartkarma also offered premium services to its clients, which allowed the company to engage clients
on a deeper level with insight providers through phone calls, face-to-face meetings, bespoke research
projects, company visits and financial modelling. The Lite premium package was priced at US$2000
per month while the Basic premium package was priced at US$5000 per month, and the Pro premium
package was priced at US$10000 per month. The key benefits of the premium package were access
to a pool of curated subject matter specialists, customisable requests for specific research services as
and when needed, and tailored research project executions, outlined upon the client’s requests.
Policies and Measures
The online platform of Smartkarma implemented comprehensive policies and processes and
innovative proprietary tools to ensure the smooth and secure flow of information and also ensured
that it met industry-wide compliance standards. All Insight Providers had to go through a formal and
structured application process followed by a verification process of work/industry experience and
writing quality. Moreover, insight providers had to sign user agreements containing key legal
obligations and provisions regarding compliant conduct and content.
Clients and insight providers could customise their usage and privacy settings according to their
individual compliance requirements or restrictions. For example, insight providers could customise
content disclaimers and clients could use account settings to filter content based on regulatory
The proprietary compliance interface of the Smartkarma platform allowed users to appoint their own
internal compliance officers. The interface also allowed compliance officers to audit and view user
activities on the platform, thus enabling the integration of existing policies on the platform in a
streamlined manner. Additionally, the platform provided users’ detailed audit and usage data report
through activity logs and customisable reporting features. Kapoor explained,
Our platform performs periodic spot checks on content. We also have a collaborative “Peer
Review” process, before publication and distribution to clients, which insight providers can avail
of. The platform also provides regular posts on relevant compliance in the form of pop-up
reminders to enhance the overall user experience and advocate a compliance culture.
Smartkarma: Market Opportunity in Investment Research
Several online tools were also bundled with the platform to help clients analyse data. The Hold-Co
Monitor was one such tool, which allowed analysts to inspect holding company structures and
accurately capture fair values. Another tool, the IPO Analyser, helped provide a data-driven analysis
of risks and opportunities among Asian IPO’s. The M&A analyser tool helped to analyse active M&A
deals and calculate risk-adjusted returns. Yet another tool, the M&A Statistics analysed historical
deals since 2011 and could help estimate completion timelines.
Expansion and Funding
Since its inception in late 2014, Smartkarma’s presence had grown quickly, from its Singapore Global
Headquarters to Hong Kong, Frankfurt and it’s newly opened European headquarters in London. The
company also had a partnership in Asia with Société Générale, which had closed its research business
in Asia and instead provided its global institutional clients access to the Smartkarma platform.
This expansion had managed to attract a series of funding that had brought the total equity investment
in Smartkarma to US$21 million. In June 2016, Smartkarma had successfully raised US$4.7 million,
led by Sequoia Capital, for its round A funding. The second round of funding had brought the total
capital raised by the company to US$7.5 million and was used to assist Smartkarma’s overseas
expansion. Later, more investors, including Wavemaker Partners, Jungle Ventures and a few other
angel investors, had invested as well. In November 2017, the company had raised US$13 million.
One of its funders, Wavemaker, was dual headquartered with Paul Santos and Dennis Goh heading
the Singapore office, and two other partners based out of Los Angeles. When Santos had originally
approached Kapoor to invest in his venture, Kapoor was not convinced. But the company later roped
in Wavemaker, realising the importance of association with venture capitalists who had experience
supporting growing firms in the industry.
By mid-2017, over 400 independent insight providers covering more than 2,400 companies across 15
Asian markets were active on Smartkarma’s platform. Insights were published on a daily basis, and
subject matter and recommendations were discussed and conferred on through active discussions in
real time. By the end of 2017, over 150 leading instit …
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