Investing in Ideas: How Smallcase Makes Thematic Investing Simple – Building a Product for the Future of Investing
Investing in Ideas: How Smallcase Makes Thematic Investing Simple – Building a Product for the Future of Investing
With Jatin Bhatia - SVP at smallcase
TL;DR
smallcase vs Mutual Funds: While both offer diversified portfolios, Smallcases allow for real-time portfolio transparency and customization. smallcases also allow you to create exposure to a trend that is early in its lifetime - for example 'electric mobility'
Customer Persona: Smallcase targets digitally native individuals with DEMAT accounts who are comfortable with DIY investing and active portfolio management.
Simplicity as a Core Principle: The product makes sure that it gives you a sense of the simplicity of investing in smallcases on the landing page - which means giving you access to a lot of information about the smallcase - manager, perfomance, factsheet and more
Customer Education: Smallcase prioritizes user education, for example, the "All Weather Investing" smallcase clearly explains its multi-asset allocation strategy, breaking down the portfolio into equity, cash, and gold.
Tickertape: Was built out to give access to data for both beginner and mature investors in a significantly better UX.
Key Principles: Smallcase's core principles are simplicity in product building, first principles thinking, and building an open ecosystem (for example with their gateway product).
Key topics of discussion:
(1) Introduction of the SmallCase Product — The world of thematic investing
(2) Differentiation of the SmallCase product — Trend picking & breadth of offerings
(3) Customer persona and on-boarding — the young Indian investor
(4) Customer acquisition — Organic and partnership strategies
(5) Product funnels and customer journey optimization — Easy, simple and low drop off journeys
(6) Solving for different customer segments — deconstructing TickerTape and its use cases
(7) Key principles and Axioms — keep it simple for the customer!
The World Of Thematic Investing
Mithun: I think maybe we can start with a quick introduction of what Smallcase is? And how you guys started off as a product, where you are now, what it looks like from a consumer perspective.
Jatin: Sure. The pitch for Smallcase has been pretty consistent until very recently. The concept is you invest in certain themes - We call it investing in ideas. A classic example to explain the concept is the buzz around green energy or electric mobility. There's also buzz around India's growth story for the next decade, or the China plus one strategy, where India can become an effective alternative to the supply chain or manufacturing that happens in China.
For instance, if you are bullish on electric mobility, how do you participate in that trend? How do you invest in that theme, knowing it will play out over the next decade?
These are different themes. People might have certain theses but lack the depth of understanding, time, or experience to benefit from these themes. For instance, if you are bullish on electric mobility, how do you participate in that trend? How do you invest in that theme, knowing it will play out over the next decade?
smallcase allows you to do that. If you have an idea or a theme, you can find investment opportunities for them on our platform.
One of our core principles is to keep investing simple and transparent. This means you can see the stocks you hold in a particular theme. In the smallcase construct, you can also customize a portfolio. For example, these smallcases are created by certified professionals, whom we call smallcase managers. They might have ten stocks in their portfolio, but if you want to customize it, you have that capability. There's a lot of control and transparency.
Differentiation of the smallcase product
Vibhav: For a layman, what is the difference between a Smallcase and a mutual fund?
Jatin: First of all let me say this, that we believe in an investor's portfolio there is space for multiple products including MFs, smallcases, etc.. In fact, we are soon going to go live with Mutual funds on the smallcase platform both as individual MFs as well as in the smallcase form factor. In partnership with Zerodha, we also have an AMC - Zerodha Fund House. So, we are big believers in Mutual funds.
Now, there are some basic differences in the construct of a Mutual fund & a stock/ETF-based smallcase that’s currently live on the platform.
In a Mutual fund, an investor is basically giving money to the Fund Manager, and the investment decisions are being made by the Fund Manager. The user can get access to the Fund’s holdings monthly but not in real-time. In the smallcase construct, the investor is able to customize the portfolio created by certified professionals, and is actually in control of the investment decision.
Secondly, in mutual funds, investors own the mutual fund units, not the underlying stocks directly. Whereas in a stock/ETF-based smallcase, investors own the underlying stocks/ETFs. In the case of a smallcase, whenever there is an update in the portfolio, investors get access to the update in real-time, and as I was saying earlier they can choose to act on that update or ignore it. In MFs, the holdings are available monthly, so the updated portfolio is also visible then.
Third, the diversity of themes in the smallcase form factor might be higher than in the MFs form factor. Generally, themes early in their journey can be found on the smallcase platform.
Vibhav: I know that a lot of people are afflicted with the passive vs. active investment debate. There's a lot of conversation around the expense ratio. Is that a differentiator for smallcases?
Jatin: I think investing is a personal choice for users. Based on their individual aspirations, risk appetite, etc. they should decide what works best for them and consider taking help from an expert if they feel the need for it.
In terms of expense ratio or cost of a product, it completely depends. For example, if you take active mutual funds, the expense ratio is higher. If you take passive mutual funds, the expense ratio is lower. In smallcases, there are two constructs: fee-based smallcases and free-access smallcases. In free access, a user is just paying their broker for a transaction fee, not paying the Manager any research fee. In fee-based, you pay the broker's transaction fee and the manager's research fee. So, in free access, the cost is relatively low compared to the fee-based smallcase, as there is a subscription fee attached.
Customer persona and On-boarding
Mithun: Can you talk a little bit about your customer persona? Who are the people you go after? How do they learn about the app? How do they come on board?
Jatin: One underlying aspect of a smallcase user is that the user needs to be digital. There are a lot of DIY elements in the current construct, and it requires active engagement from the user. So this is sort of the first prerequisite.
Second, in the current setup, you need a DEMAT account to invest in smallcases. That is my broad definition of the universe- the digitally native public, or rather, digitally familiar individuals. For instance, e-commerce transactors, non-cash-on-delivery users, and maybe UPI transactors.
E-commerce transacting users would be greater than DEMAT users. So my sample size is any user with a DEMAT account.
For some users, when you open a bank account, your DEMAT account is also opened. We cater to some of that audience, but broadly, users need to be digital natives who can do DIY. The reason this is important is the most critical aspect of smallcase construct is ‘rebalance’. You invest, and then you are expected to come back and update your portfolio or make certain actions on it. That is why it has to be someone familiar with digital transactions.
It skews a little younger, late 20s for median age, but we also have users older than this on the platform.
Customer Acquisition Strategies
Mithun: How do people get to know about smallcase?
Jatin: We have our direct channels, performance marketing, and so forth. Then, we have a broker channel with broker partners. For example, if you open the Kotak Securities app, a broker partner, you will see smallcases on its app. These smallcases, created or shortlisted by the Kotak Securities team from the smallcase universe, introduces users to the platform.
People recommend smallcases to each other. It has become a noun. People ask, "Do you have exposure to smallcases?" like with mutual funds.
Some broker-led users have an assisted journey; the RM helps out the user . Post-COVID, brand awareness has increased significantly. We have strong referral and word of mouth. People recommend smallcases to each other. It has become a noun. People ask, "Do you have exposure to smallcases?" like with mutual funds.
To summarize, we acquire users through direct channels, performance marketing, and broker channels. Brokers use smallcases to introduce them to investing. This becomes a broker channel, followed by referral and word of mouth. Then, we have manager partners who share their offerings with their clients. Our biggest channels are our direct and broker channels.
Product funnels - Simplicity and transparency
Vibhav: On the direct side, what does the onboarding funnel look like or if it's through the broker channel?
Jatin: It's similar. For the user, it's simple. They land on a smallcase property through different channels. There are two possibilities: they have a brokerage account or they don't. If they don't, they can open one with our partners. If they do, they explore the platform, select a smallcase, and start the fulfilment journey by logging in with their broker. In the entire journey, the money flow happens either to the manager for the research fee or through users’ demat account with their broker. The investment money moves from your DEMAT account. You track the portfolio on the smallcase platform, set up a SIP, invest more, and rebalance when notified by the smallcase manager. This is the lifecycle of a smallcase investment.
Vibhav: I think there is an added element of education done by the RMs of the brokers. In your direct channel, what are the key things that you think you solve or should solve or are continuing to solve in that journey to investing in the first Smallcase?
Jatin: Right, so going back to what I was saying earlier, a core principle is that we want to simplify things for the user. And the construct itself, for a new user, when you are onboarding for the first time, you need to feel that it is a simple product. If I can give you a sense of the simplicity on the landing page or the home screen for a new user, that’s a good start, so that is where we have given a lot of thought.
For users to make an informed investment decision, we focus on providing them access to all the relevant information about different aspects of the smallcase - like about it’s strategy, the Manager, etc. So we have a detailed smallcase profile which includes rationale, live performance, methodology, factsheet, etc. We have also recently introduced a Manager Updates section - where the Manager can share latest updates about the smallcase natively on the smallcase app, this also helps users build more context about the offering. Another tool that I personally find very useful is the cost calculator - where users can actually see the portfolio returns adjusted for cost. So, being more transparent with the user is something that we always try to do.
Let me explain these different aspects using an example - one of the smallcases is called All Weather Investing. The strategy of this smallcase is that it’s a multi-asset allocation portfolio.
This portfolio allows you to take exposure to 3 different asset classes. The first asset class is equity - it has exposure to the top 100 stocks. The second asset is cash - the smallcase helps you take exposure to cash, because at times sitting on cash itself could be a good strategy. The third asset is gold. So, it is just an asset allocation. It just keeps rebalancing on the weights of these three asset classes based on a quantitative model. So, this information makes it easy to understand for users.
There are more such products with a simple theme which are easy to understand for users like ‘Top 100’ which helps take exposure to the top 100 stocks, and Equity & Gold which is an asset allocation between Equity & Gold.
Some people just come to the platform because they want exposure to smallcases. So, what we have seen there is that social signaling works best. And here we show lists like “most invested smallcases”, “most watchlisted”, etc. Things like that. It's very objective, very similar to Netflix's trending. There is that social element also that we add here. So the wisdom of users' actions on the platform is also there.
Then, after that, there is a lot of educational material. There are blogs, there are videos to explain how this entire thing works. This is on-product.
We have invested a lot in off-product journeys for new users. We run drip campaigns till D14, D21.
What we have really doubled down on in the last, I would say, four to five quarters and has really benefited us is we have invested a lot in off-product journeys for new users. We run drip campaigns till D14, D21. In these, there are different things that we are tackling. We are answering certain queries on how the platform works that we know people might have. I think that has also led to a lot of education and conversions on the product.
For smallcases, conceptually, especially for somebody who is coming in new, it is necessary to tell them what it’s about. So, that is something that we do a lot using our off-product journeys also.
Apart from this, there are certain users who come with an intent. They know which Smallcase to buy. They will directly funnel in. They will search, they will transact, they will move forward.
Cohort based optimisation of customer journeys and customer education
Mithun: One thing that I was curious about is in general, in a product like Smallcase, you have many different things that you are trying to and you don't know what the intent of the user is when they come in. How do you know what should be in the first communication? How did you experiment to say that this is the right first page? And then, this is the journey that I want from D1 to D2 to D3. At least from a playbook standpoint, to make the journey as optimal as possible. What is that process like?
Jatin: I think this is one of the things that, we have iterated a lot. We have experimented a lot. We have a lot of configurable real estate on our home screen, and we have cohorts (of our user base). We try out multiple things,, and then you sort of iterate and come up with certain outcomes based on this experimentation. But more than that, I think one thing is that Anugrah, one of our founders, who drives the entire product for us, and he keeps saying this, our product ethos is based a lot on first principles. We don't do this in everything, that we look at the data and then do this.
There are certain things that we believe in from a first principle standpoint.
For example, among all our users who are starting their journey, there are some users who are looking for something specific, which we have covered in the search funnel. But if you don’t know about smallcase beforehand, we provide you info about how the platform works and also give you all the requisite info about the smallcases to help you decide.
Philosophically you can ask users what they need, or you can understand what is the problem they are facing. We always prefer the latter. We have done significant user research to understand our users’ problems, we have spoken to a lot of people, and have concluded we have different personas. There is a beginner, and then there is a mature persona in the market. There are users who have been using the DEMAT account for five years, what are they doing? So, we have done our own experiments, we have seen that we have these cohorts, we try out things with different cohorts, and in principle, we want to ensure that the new user has a good experience, by building a good understanding of the platform & the products they are investing in.
Feature prioritization and frameworks - Example of Tickertape
Mithun: How do you make product prioritization decisions? Is there a framework that you think through? If you can just walk us through that, maybe Tickertape is a good example.
Jatin: I think I can start with Tickertape, and then we can go to the broad principles. I think in Tickertape , the fundamental value proposition is, it's an analysis tool. If you are looking for analysis, if you are looking for a very granular portfolio tracking, I think that is the tool for you, where you can get all the information across different assets, mutual funds, stocks. You get all the detailed information, you get a very sophisticated screener, where you can filter out stocks, mutual funds based on whatever criteria you want to. There is a very exhaustive portfolio tracking experience as well that we have built. Just to give you some specific examples, you can actually go and see what stocks in your portfolios are, which have certain objective red flags. Red flags could be pledged promoter holdings, so on and so forth. You get a very in-depth experience on Tickertape.
Tickertape, I think we always felt, was a great user experience merged with richness of data was a big gap. You will have a lot of data-oriented products, where there is a lot of data. Like if you go to traditional platforms, you will get a lot of data there, but in that UX is not that great. You don't get that very simplified and delightful experience to use.
Tickertape - Solving access to Data for investors
Vibhav: So you are saying that the customer problem was “there was a need for the user base on your platform for a deeper analysis tool”, and that's where Ticker Tape came in. Does it sort of contradict your long-term investor proposition. Like when people come in, they say I'm not a day trader, essentially I am a long-term investor, and I am adding on to my mutual fund portfolio. Is that sort of slightly different from the mindset of users who want a Tickertape-like tool?
Jatin: No, not at all. I think it's a very common misconception that only day traders care about data. I can give you a very specific example. Let's say you want to create a long-term portfolio, and you want to shortlist certain mutual funds. Now you would want to screen those mutual funds on different parameters. For example, there is a notion, if a mutual fund grows very large in AUM, it is difficult to navigate for the fund manager because they have to deploy a lot of capital. You might have certain criteria like this. Now you want to go to a screener, you specify your parameters, tell me which mutual funds have assets under management of less than 20,000 cr. You specify those, and then you get the right mutual funds that fulfill your criteria. Now this is not something that is equivalent to day trading. Data and analysis is as much a requirement for long term investors as much as it is for trading.
Now here on TT (Tickertape), I am not showing you Futures & Options, I am not allowing you to build those candle graphs (if you have seen those trading platforms), I am not doing that. We want to give you the right data. And I would actually go one step further and say that if you have a portfolio, where you are investing in mutual funds, let's say at the bare minimum, and whatever you can beyond that, I think Tickertape is meant for you also, because just to understand your portfolio better, understand your constituents better from a data perspective, what is happening, what is going on. All the data and analysis around your portfolio is something that we provide on Tickertape. There are long term investors who also care about constructing the right portfolio, looking at the portfolio a little bit deeply.
Vibhav: Understood. Just going back to how you thought about, so that's the customer problem, you said okay, there is a set of investors who need analytics tools, that's where Tickertape came in. Anything else you look at?
Jatin: In general, we think of it in terms of access to data. I can give you a specific example, how are the returns of two mutual funds, for example. If you want to understand deeper, there is a scorecard that we have, where we are calculating objective scores on different parameters and so on and so forth, on stocks. So the problem statement, how I would define it is, “if users want to know more about assets”, understand what is happening for a mutual fund, know about a mutual fund in depth, you want to know about a stock in depth, including their revenues, projections, everything, all that information is available with us.
Now some people use the tool to do that second level of analysis. Some people use it for surface level information. Then there is a large chunk of users who are like, I just need generic information, I don't want to know about the market at large, I just want to know about my portfolio. There is a large set of users on Tickertape, who import their portfolios, and get this specific information about their portfolio. If you go to Tickertape, you will see a lot of data-based insights based on that.
One thing that I would really want to call out, on Tickertape, one of the products that we have is called the Market Mood Index or as it’s often called, MMI, It is basically, as the name suggests, informs what is the market mood, is market in fear, is market in greed. I can tell you personally as a user, whenever I have seen that tool in fear, and I have invested, it has been good for me in the long-term . It is such a great tool to understand the market sentiment. I have recommended it to all my closest friends, my family, everyone, that if you want to see what is happening in the market, this is the best possible indicator. Like I have not seen at least something come close to the market mood index that we have built. In my view it is, it's one of the best things that has come out of Smallcase.
Axioms to swear by even if they don’t drive metrics visibly
Mithun: One of the things I think of while building products is that there are some axioms about the customer that you hold very dear, and you don't test it out. What is an axiom that you built smallcase on?
The key thing is that we want to keep everything very simple for the user.
Jatin: I think in the principles only thing, the key thing is that we want to keep everything very simple for the user. A lot of things that you would see come in our discussions, is that let's simplify this, how can we make this more simple.
Second, in general, our approach has always been from first principles.
I think the third thing that we care about is building an open ecosystem. Like you look at gateway (smallcase gateway), if you look at, let's say publisher, it's an open ecosystem. If you are a registered entity, we give you an opportunity to create your portfolios on the smallcase platform. If you want to power transactions on your own platform, for example, ET money, they have an offering called ET money genius, where they create stock portfolios, and mutual fund portfolios. Their stock portfolio transactions are powered by gateway, so all the broker integrations that we have done, we have actually externalized it., so we believe that's a key part of our ethos, that we want to build an open ecosystem. And I think that's something that differentiates us significantly, and people don't understand this aspect about smallcase, much because it's more B2C, and people just see the platform.
Mithun: Is that though a big contributor to your key numbers, active users or revenue?
The thing about principles is you stick by them, even if it’s not the largest growth driver
Jatin: The scale of our direct channels is significant, so that’s the key driver for us. but in general, it's more like, you know we want to, I mean, see the thing about principles is, like you have, you stick by them, even if it’s not the largest growth driver, so then it makes sense. And to be honest, it was more about that we had that capability, there was a demand for it, and we believed we could add value to the overall ecosystem.
Vibhav: Thanks a lot Jatin for your time. This was a great conversation!
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