Prosper - Angel update #2

Next up in my rundown of the Angel investments I’ve been making is Prosper a FinTech business building a long-term savings and investment platform.

The Rebel syndicate has been busy again with another FinTech investment into Wales led by Nick Perrett and Ricky Knox they’re looking to replicate an operating model they’ve seen work in their time at Tandem Bank .

The core of the proposition can be summarised by this image below - the Wealth Management industry has been struggling with the transformation to become lower cost whilst also providing high quality, much needed advice to consumers.

I will also state here that this post reflects my own opinions on why I’ve invested in Prosper and this shouldn’t be taken as financial advice as I’m not a financial advisor (phew….legal disclaimer done!).

I’ve also not run this post past Nick and Ricky so if there’s anything I’ve got wrong in here it’s my fault, not theirs!

Prosper is attacking a challenge I’ve struggled with personally, and a challenge  affecting lots of people that I know, around how to build my savings, pensions and investments portfolios in the most cost effective manner.

I’m always conscious that my ‘pots’ are constantly being nibbled at by the IFAs/Pension companies/Asset Managers who I use without necessarily getting obvious value in return. This is not to say that the overall Wealth Management isn’t trying its best - it has been improving its transparency on fees for example - but it seems largely still stuck in a paradigm that doesn’t really work for people today.

As the old investment adage goes, the only thing I can control when investing for the long term are costs - the performance my pot achieves hasn’t really correlated with these costs.

Unlike most other things in life, it seems that paying more doesn’t necessarily mean a better result.

Over the years I’ve had what would be considered to be regulatory compliant, ‘good advice’ but often with fairly mediocre outcomes as ‘the market’ is just doing its own thing and doesn’t respect the fact I’ve been given ‘good advice’.

As with Zero (see post here) I was the Lead Angel, partnering with (part of the Development Bank of Wales), to raise funding to support the initial launch of the business on its journey. 

Prosper had been able to already attract significant Angel investment from highly credible sources - such as Tom Blomfield, the founder and former CEO of Monzo Bank .  Nick and Ricky had their experiences at Tandem bank to guide how they can see Wales as a strategic location for their business plans.

The ideas behind Prosper that appealed to me were:

 i) High rate Savings led - Prosper are looking to partner with leading banks to obtain market leading rates for savings. These savings flows are highly mobile and can rapidly grow the ‘assets under agreement’ (AUA) a key metric in this Wealth Management space.  For example, they recently launched a 5.78% AER (5.6% gross) 12 month tracker is a near market leader, if not THE leader and there will be more to come.

5.78% (AER) Savings product launched

ii) Core Public markets at zero cost - the core of a portfolio can typically see the likes of Vanguard, Fidelity, Blackrock and HSBC offering low cost, diversified (asset class/geography/style (passive vs active) etc.) funds that can give any investor a good core on which to build around. Prosper has selected a number (30+) of these funds and is offering some of them to investors at ‘zero’ cost.

Yes, fee-free core investing. 

How are they doing this I hear you ask, well its fairly simple. The funds selected are typically already low cost anyway so can easily be funded by the business.

For example, one of the funds offered is the ‘Fidelity World Index Fund’ which is a passive fund with OCF (Ongoing Charge fee) of 0.12% which is being refunded by Prosper to make it ‘zero cost’ - again this is a low cost fund to start with but every little helps….(see the image again for proof of the difference between 2% and 0.42% fees)

iii) Private market access for less - while its great having public market access to be able to buy into the giants of industry, there’s a lot of growth and opportunity that now only resides in the Private markets.  Obviously in the extreme, Angel investing is being at the coalface of Private market investing but it is very high risk.

I, like many others, would like to be able to get access to other Private market asset classes with lower risk than Angel investing - like VC, Private Equity, Hedge funds etc. but the minimum commitments of $100,000 or more for many of these investments put it beyond the financial reach or risk tolerances for many investors. 

Prosper are looking to make these Private markets more accessible with lower entry prices and greater flexibility around the products.  This part of the offering will take time to develop and likely involve partners to deliver but the direction of travel is clear - to give access to where the exciting growth opportunities.

In an ideal world Prosper may be able to do to Private markets what Vanguard did to Public markets by making it very low cost.

I was introduced to Nick and Ricky by the Angels Invest Wales team (thanks to Stephen Holt , Carol Hall and Tom P. ). The first meeting I was impressed by the overall quality of the team and the level of ambition for the business and also the fact that this problem is one that no-one seems to have cracked…..yet!!

Looking forward to working with the Prosper folks, and being a happy customer, as the team really starts to crank the growth up.

Will do another Angel portfolio update and more about Rebel syndicate soon.

Onwards and Upwards,

Simon