Toronto fintech d1g1t has kept a low profile since rolling out its product a year ago.
The company, pronounced “digit,” provides an all-in-one software solution giving financial advisers more granular data, which is being used by some of Canada’s wealthiest family offices and investment firms.
It’s made deals with 12 clients to manage over $50 billion in assets, and is pushing into the U.S. market.
Toronto startup d1g1t has made deals with 12 clients to manage over $50 billion in assets by providing software to some of Canada’s largest financial institutions. Now, it’s expanding to the U.S. The firm pitches itself to asset managers as market-beating software that can help investment advisers make money during a period when one of their traditional revenue lines—trading fees—is rapidly evaporating.
The company pitches itself to asset managers as market-beating software that can help investment advisers make money during a period when one of their traditional revenue lines—trading fees—is rapidly evaporating.
“We tripled over revenues from the year before, and we’ll at least double, if not triple, revenue next year,” said CEO Dan Rosen. The firm has about $5 million in revenue now, according to Rosen.
The firm, which has 11 clients in Canada, targets asset managers in the $200-million to $300-million range, but has recently had success bringing in much larger clients. In the past three months, d1g1t has signed on New York-based BBR Partners, which has over US$16 billion in assets under management, and it’s also secured a minority investment for 9.5 per cent of the company from CI Financial, which manages $177 billion and plans to use the company’s platform. Its customers also include family offices like Forthlane Partners.
“These are tools that the investment banks have been using for their own trading. These are things hedge funds have been exploiting and using very successfully for the last 15 years,” said Rosen.
JPMorgan Chase, Fidelity Investments, Vanguard Group, Charles Schwab, Interactive Brokers and TD Ameritrade are all offering free trading options. When TD announced the move in October 2019, its stock dropped 26 per cent.
“You see now all these ETFs going to zero, all these trading fees going to zero. So the question is: where can you charge? And the answer is providing coaching and advice,” said Rosen.
D1g1t’s growth has accelerated over the past year. In November 2018, it raised over $9 million. Since then, the firm has quadrupled its assets under management and grown to about 40 employees.
Last month, d1g1t announced two new executive hires tasked with leading the U.S. expansion: Kian Rafia, who was previously an executive vice-president at Morningstar, and Andrew Aziz, previously senior vice-president at IHS Markit.
“Going into the U.S. market, I don’t think you can be a small player and survive there. I think either we’re going to have 200 clients or we’re going to get three clients, but it’s not going to be somewhere in the middle,” said Rosen. He’s also hoping to grow the amount of business he’s getting from existing clients, which he said have over $230 billion in assets under advice or management.
Rosen co-founded d1g1t in 2017 following stints at S&P Capital IQ and the Fields Institute for Research in Mathematical Sciences. He sold R2 Financial Technologies to S&P in 2012 after a six-year run. He got his undergraduate degree in chemical engineering at the Universidad Autónoma Metropolitana in Mexico City before coming to the University of Toronto for his PhD.
D1g1t has received investments from Portag3, the fintech venture capital arm of Power Corporation, which has also backed some of Canada’s most high-profile fintechs, including Wealthsimple, Koho, Borrowell and Wave. But d1g1t has raised $18 million, just a fraction of what those firms have—Wealthsimple, by contrast, has raised about $227 million. Rosen has no plans to bring in similarly large sums.
“I don’t think we need to inject hundreds of millions of dollars, I think we can be really profitable and scale,” said Rosen.
“We have the big institutional investors. We have Power Financial, we have CI Financial, we have Illuminate Financial … so we already have the backing if we needed it.”
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D1g1t isn’t profitable yet, but Rosen said he plans on hitting that point in the next two years, while simultaneously expanding. Although the U.S. is the expansion focus, most of the new hires will be in Canada. The firm, which is currently based in Toronto, is looking into creating a Montreal outpost.
“In Toronto, there’s competition in hiring the right people. I want to make sure that as we go from 40 staff to 100, we maintain that quality,” said Rosen. “Montreal has a nice vibe, and there’s some incentives that we’re exploring to see if they’re worth taking.”