Losses Mount at Fixed Income Startup Algomi &#8211; Financial News

Feel the Bern! (with apologies to the Sanders campaign). Establishment of a networked market is notoriously difficult, the value comes once there is a large number of participants. Algomi simply isn’t there yet, even with 170 firms globally. It’s simply too early to expect much in terms of profit. Let’s remember LinkedIn, Facebook etc weren’t cashflow positive for years, but once you have the network the sky is the limit. It doesn’t take a genius to predict Algomi will be raising capital again this year, even if they go cashflow positive. Why? It’s a confidence issue. Algomi is not selling… Read more »

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Hollywood

A buy-side product is more scalable then a sell-side product for Algomi. This is because many dealers already have order / inquiry matching solutions (built in-house or from Algomi competitors such as Code Street, Xios, Bloomberg, etc…) In addition, there are more buy-side accounts than sell-side. I understand that Algomi’s Honeycomb product enables the buy-side to heat map dealer interest in their trading schemes. This solution is only viable if a critical mass of dealers integrate Algomi. Many challenges here. I think they should hire people from the Human Genome Project.

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Don’t think anyone is surprised that they are burning a lot of money. It has always been a mystery as to where/how they are generating revenue. While their marketing and PR has been PHENOMENAL, their business execution has been weak. And not because they have bad ideas or a bad product, just the opposite, it is just so damn hard to make something like this work. And I think they made it even harder on themselves by going global so quickly without establishing a beach head. Not only did this drive up costs with little revenue (my guess is their… Read more »

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Looking at the Algomi accounts lodged at Companies House it seems they lost £14MM up to June 2015 (P&L account). A further £9MM loss if for post-June 2015 and that’s £23MM of cash. Does Algomi make sense as a product? Definitely. As others have said however the cost of building this network is phenomenal. One of the worst issues new entrants need to overcome in capital markets is changes to workflow. Hollywood & Merlin are right to say Algomi needs to show the world its future certainty in raising cash. I certainly don’t subscribe to a counter-argument that ‘oh well… Read more »

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Viper

Algomi’s marketing has bern, as has been stated, phenomenal. The awards shelf in their office must also be overflowing. But, stateside at least, I always the premise was flawed. Dealers thrive on “looking” like they are involved and are THE place to go, hence 20 Bloomberg runs on the new xyz deal. Unless Algomi was going to get actual disclosed dealer trades by bond/credit (challenge! they are not) I don’t see how all the info in the world is anything more than “this dealer quotes this bond a lot”. Buy-side professionals have a 1) relationship and 2) credibility track record… Read more »

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Stinger

Hi Viper, funny enough it IS Algomi’s model to get actual disclosed dealer trades – they connect to the dealer booking system and don’t really let them paint pictures aside from their actual activity. So they got that part right. As everyone has noted, however, the space they are in is very difficult, and a model of charging the dealers in this environment (probably any environment) is just not viable. The concept and technology are quite attractive…if only that is what it took to succeed financially. The tech world, and fin-tech in particular, are littered with great ideas that were… Read more »

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It doesn’t matter that they get disclosed dealer trades (and more) via their technology connections if they don’t have a critical mass of dealers providing that information. They clearly have not figured out the right model yet or we would have already seen the major dealers signed up and onboarded.

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Wolfman

Help me here. I know great ideas may take time to demonstrate viability, but what exactly is the business model? Is the plan to charge an execution fee, so you pay as you go? Or is it a subscription fee which will be added to the ever-increasing costs of doing business in fixed income? Algomi is a great product, but so is CodeStreet. Will these platfroms matter? Absolutely! The recent purchase of CodeStreet by Tradeweb should be proof enough that technology which can help make some sense as to what sort of interest there is in a particular trade should… Read more »

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Goose

Algomi’s products have great technology, functionality, intuitive userface,….so what seems to be the problem? The problem isn’t marketplace technology, just look at what is available in other markets. It seems to me that the hurdles to get this state of the art offering installed at a single large dealer are legion, and require a fair mount of time and resource from a startup. – The complexity of installing and connecting to a host of different areas internally – Adoption by a quorum of the dealer’s users to generate the internal benefits and signal acceptance to the buy side – Replicate… Read more »

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Exactly Goose. There were actually two pivots, first a trading execution platform networking dealers through the Swiss stock exchange, then Synchronicity for a dealer workflow tool, followed by Honeycomb a networking/dissemination tool for the buyside which was not really something dealers were pushing for. I do think this last piece was an effort to win over the buy side and try to bludgeon the dealers a la MarketAxess. Now as we have both stated, they are spread too thin, have no beachhead to build from and are left to wallow in their own glory. While Wolfman is right in that… Read more »

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Tried and failed.

It is very easy to criticise the efforts of pioneering firms like algomi and to underestimate the complexity and difficulty involved in reaching a successful outcome in this market. Algomi has been very successful in many aspects, but to succeed in the critical first few years you need to be consistently excellent. Once a business is established success is far easier with less effort. I would suggest a few potential gaps in the algomi offering: It is not all to all It relies on dealer support both financially and for data quality The big dealers are not on it because… Read more »

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Never underestimate VCs’ inability to understand capital markets. I suspect Algomi must show clear signs of consistent adoption/turnover/other metric for VC support else it’s strategic investors.
It’s very sad the barriers of entry to solve wholesale market problems are not decreasing but rising.

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Tried and failed.

Fixed Income really is not a VC environment. The time frames are too long, client acquisition cost is too high and revenues are scarce until an unknown critical mass is achieved. The dominant existing platforms are or were all owned/sponsored by the dealers to provide solutions for dealers. I would suggest industry partnership is a better source of capital.

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Hi T&F–

Why is a lack of all-to-all a gap? This creates a heavier lift as it changes market structure and is predicated on a large network. It also remains to be seen whether all-to-all will actually have value in the market outside liquid bonds.

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Tried and failed.

Algomi has invested time, effort and capital into connecting up 170 buy-sides. Buy-sides have abundant bid and offer liquidity all day every day in all types of bonds. Confining the workflow to hoping that a dealer will glow on the Honeycomb heat map for any buy-side inquiry ignores the vast potential of buy-sides matching buy-sides that has been so effective in MarketAxess ‘open trading’. So if your revenue model is to justify a buy-side pays a subscription fee to you, you better maximise validation by maximising all potential liquidity matches. The irony is of course that algomi captures all the… Read more »

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Thanks, T&F. I understand the numbers and potential value but all-to-all, while potentially beneficial, comes with some risks: 1. Shooting yourself in the foot with dealers. MA can do this because they already have dealers beholden to them with no other alternative. Once you go all-to-all, it will be difficult to go back should this fail. 2. Pivoting to a market structure that is yet unproven. While MA Open Trading headlines indicate that they are making progress, the whisper I’ve been told is that most trading is actually D2D. If a good (perhaps majority) portion of Algomi’s revenue comes from… Read more »

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Tried and failed.

You may have revealed a conflicted revenue model as well. Like I said before, all of this is solvable and algomi has no shortage of smart people.

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Voodoo3

Sorry, bit these are not issues that arose since Algomi launched but well before. One thing for a start-up, is getting unlucky somewhere along the way (market conditions, regulatory changes, delays) another is fleeing forward and hoping for the best. By the way, by ‘no shortage of smart people’ do you mean the abundance of super advisers Algomi has on board?

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CelticBond

THis was a well funded start up. What I see with ALgomi is that it is rarely out of the news or up for any award going. The idea is good but the delivery has been criticised whenever I ask people about them. No a FI platform is not comparable to a LinkedIn (which is losing money) or Facebook. The money required for FI platforms is a drain so like TW or MA there is huge pain before traction occurs thats the fact. Those funded & endorsed by the banks survive better than others as the kill ratio over the… Read more »

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krogers

Noting that a startup is operating at a net loss is neither surprising nor newsworthy. Algomi faces challenges in convincing a deeply traditionally-minded industry to accept broad changes in its business model, but there is an inevitable tectonic shift towards greater transparency and smarter technology. Networks don’t grow in a linear fashion. I completely agree that there needs to be more of a focus on the US business, but naturally the first movers on the sell side are the dealers who are more nimble and agile and willing to slice the shrinking pie more creatively. Algomi doesn’t have sell side… Read more »

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You are correct in that it’s not surprising that a startup is operating at a net loss. It is, however, interesting and newsworthy that a startup is operating at such a large loss without having figured a lot of things out.

In other industries, traditional software companies operate very differently than we do in FI tech. I wonder if the results we see are a function of our industry or if we don’t operate/execute properly. My gut tells me it’s the latter.

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The vested interests both deliberate and unintended, such as compliance creates such a large barrier to entry in capital markets, that it is hard to compare our industry to typical start-ups. So what will it take for profitability? £50-60MM if so is it worth it? This is one of the bigger opportunities and problems we suffer. We wonder why so little changes.

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Cougar: Compliance is definitely a barrier, but the same could be said of any regulated market. Still seems like we are much further behind the curve in FI and the approach is different in those as well.

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I can think of few such regulated industries. We have less regulation than medicine or nuclear power where the regulator must sanction each provider as well as the specific reulations. That said to get 20+ ‘yeses’ internally and senior, central sanction when every person fears their job in each sellside institutions is a worse situation. Achieving that in the requisite 20 firms is near impossible. It would seem R3 and Markit have the right approach. Not invasive, funded by users, few sign-offs and the ability to solve the problem almost exclusively ‘offshore’ from the user’s firm. I ask rhetorically perhaps… Read more »

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I have a lot of respect for the Algomi team. There are some very talented people working on a very difficult task. I’d argue that enormous funding is the root of their issues and not the solution. Losses are large because they are not executing properly. Generally speaking, ideas are cheap and executing is expensive. Startups are successful due to being nimble, validated learning and then executing on what is validated. Instead, Algomi seems to execute first, then learns. How can you be nimble when you have a roster of talent like that and there are so many “Heads of…”?… Read more »

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Voodoo3

Algomi are engaged in a race against time: build a big enough network of buy side participants -worth something/a lot to someone- versus burning all their capital/credibility. Initially there seemed to be a business plan and every year that changed: Exchange, Sell-side Synchronicity, Buy-side Honeycomb. If you didn’t understand their Master Plan, you just didn’t get today’s world!! Great (looking) products, massive amounts of PR/marketing, one great advisor after another joining the team, nauseating amounts of inno-awards and the image of a dynamic firm in the hands of a young frontline CEO like we hadn’t seen in a long time!!!… Read more »

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All my experience points to one thing. Concentrate down and focus hard on one objective: getting my clients to do more trades with me (a sell-side, salesperson).
Drop the advisors, cut the workforce to 30% and concentrate on that single core objective. Advisors gone, PR gone, secretaries gone. Success is its own beacon. Executing trades will be one hell of a beacon the market will see. If that seems impossible then so is the business however wide it’s spread.

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CelticBond

The focus strayed from Euro clients but still the PR machine is being cranked out at a high rate. Is there an award going they have not won? I like the idea of what Algomi is doing, BUT this needs a lot of money & more dealer buy in. I don’t think there are any really live clients at this stage? Why did they need an Asian office at this stage? Other FI platforms that are US or European have seen Asia as an expensive drain due to the diversity etc plus the plain fact that eTrading is so low.… Read more »

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If Algomi starts getting product right in a time horizon short enough to fund themselves, there is no doubt that they will be the 800lb gorilla in the space. They are by far, taking the most risks and connecting many dots that have never been thought possible. As has been said prior, getting 170 buyside accounts is no easy feat.

For years, Amazon.com was ridiculed. They’ve killed many brick and mortar businesses. They had the vision, tenacity and funding to do so. If Algomi starts delivering real value, they will be hard to beat.

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Goose

Does the FNL community have any clarity on what “170 buy side clients” means? Is it just signed paperwork, are they just connected in production to Honeycomb, are 170 clients interacting with the dealers that are in production on the other side? Clarification would be most helpful in evaluation.

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Wow, this is amazing. Think the FNL hit a nerve with this one? Obviously a lot of pent up opinions about Algomi. So many good and bad ones I don’t know where to start! So just a few… Algomi found themselves in a difficult position. They couldn’t get dealers to sign up for synchronicity for a variety of reasons. So they needed a larger value prop and came up with Honeycomb and dangled the opportunity for dealers to push data to their clients via the Synchronicity system. Unfortunately, this value prop wan’t considered attractive enough either by the dealer community.… Read more »

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CelticBond

So in Europe there is Neptune which again for free & many big buysides have signed to along with Algomi too. Whats common amongst these is that free does not mean any commitment especially when there is no live delivery.

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Neptune is way cheaper for dealers to participate with and is much more aligned with how they wish to continue to run their business. There has been little friction with Neptune’s model and the community. Algomi on the other hand….

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Iceman

Neptune is free at the moment for the Buy-Side but the model is to have the Buy-Side pay a nominal fee for the data (£16k) for the global entity starting in July I believe. For dealers it is £79k for the global entity across global IG/HY/EM etc. from their marketing material. Big difference is the business models from what I can tell between these 2. Neptune is a utility model and cost priced which also means I imagine they watch the costs pretty closely. Only time will tell which model is best for the market but at this time of… Read more »

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CelticBond

Neptune requires someone to pay for the build as Etrading Software themselves cannot afford this. So as such a utility that will struggle as they did with their IRS translator. There are so many free models already out there why would a Inv. Mgr not sign as they then await a clearout? Algomi’s financial headache is interesting as the management are very focused no on North America? Why not get the project going & gain traction in one location rather than are too soon in their life to be Global? Is there really a need for an office in the… Read more »

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Why is there so much “comparison” of Algomi and Neptune? They do very different things. Algomi’s Synchronicity is a pre-trade workflow tool to help sell side corporate bond salespeople and traders identify and prioritize axes to work on. It competes with TradeWebs/Codestreet’s product and Bloomberg DASH . All focus on helping sell side execute trades. Algomi also has Honeycomb, a system where dealers using Synchronicity can feed information for the benefit of buy side traders searching for the optimal counterparts on a potential trade. Neptune on the other hand is simply a messaging platform allowing participating dealers to deliver axes… Read more »

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