30/10/2024
Elphinstone, the startup that lets Pakistanis invest in US companies, has acquired Pakistani digital asset management company Trikl. But why?
Elphinstone is a one of a kind investment advisory startup that has seen more lows than highs. But with an idea that makes sense and this new acquisition, can it go the distance?
Elphinstone, the investment advisory startup founded in 2020, has made an acquisition. It has successfully acquired Pakistani wealth management startup called Trikl for an undisclosed seven-figure sum.
The acquisition marks a watershed moment for a startup that has seen highs and lows for the past four years. It was founded as a one of a kind investment advisory startup that is banking that one day Pakistanis would know that they can invest in countries like the US and earn a lucrative return.
Elphinstone targets individuals with a dollar income, such as freelancers, or savings in Pakistan. Most people do not realise government regulations allow you to invest $25,000 per person per year abroad, legally. Elphinstone provides platform and advisory services for people to do this.
The vision of creating a business that facilitates Pakistanis’ investments abroad, especially in the US stock market, has been a long-standing ambition for Farooq Tirmizi since 2009. Tirmizi has an impressive resume, and is a seasoned investment professional with a background working at prominent investment banks in the US. He has also worked extensively as a journalist in Pakistan, first serving as the chief financial correspondent at Express Tribune. Tirmizi has also played a significant role in shaping this publication, having served as its managing editor for four years, Tirmizi has been pivotal in getting this publication its traction and success until he left it in 2021 to pursue his passion project Elphinstone.
“I am not a startup founder because I want to be a startup founder,” Farooq Tirmizi says in an interview with Profit. “I am a startup founder because this thing should exist. Nobody else was building it so I built it.”
Things have been difficult for Elphinstone from the get-go, having faced challenges after challenges. But Elphinstone has been able to survive. And not only has it survived, it has recently acquired another wealth management startup Trikl for an undisclosed amount.
Founding Elphinstone:
Elphinstone has carved out a unique niche in the fintech landscape by enabling Pakistani investors to access the US stock market. The company is registered with the US Securities and Exchange Commission (SEC) and has already established a partnership with a brokerage firm in the United States, enabling it to offer US investment accounts to clients in Pakistan. Additionally, through its local entity, Elphinstone Pakistan, the company provides advisory services on mutual funds.
At its core, Elphinstone operates on a straightforward revenue structure: it charges a 1% fee on assets under management, charged annually on average account balances. This model allows the company to offer advisory services for US investments coupled with free trading without any commission fees, making it an appealing choice for investors looking to maximize their returns while minimizing costs. By eliminating transaction fees, Elphinstone differentiates itself in a market where many platforms impose significant charges for trading.
But until recently, investment in the US stocks had not been Elphinstone’s only revenue stream. Its Pakistan focused voluntary pension scheme (VPS) for employees working in a company was also another one of its core products. Elphinstone stopped the VPS business because of its unviability due to lack of automation in the processes. As Tirmizi explains, VPS service is active for legacy clients only at the moment and they are not actively marketing it to new clients. The service had to be offered and fulfilled totally manually, making the cost of operating a VPS business always higher than revenue generated by that business. How? Since it is all done manually, the more clients are to be offered this service, the more workforce would have to be hired, making it an expensive business in the absence of automation. This makes the VPS business a cash burning business and not the fastest path to breakeven. The Elphinstone team often had to travel across cities to get employees of their client organisations to fill in very long and tedious forms.
The US business:
The US business, on the other hand, is the fastest path to break even but one that is going to require some time to break even. Tirmizi candidly says they are not profitable yet but the growth of 20% month on month was promising. Elphinstone has been able to accumulate over a million dollars in assets under management.
Going has not been very easy for Elphisntone from the get-go. From its inception, Elphinstone faced a myriad of challenges that tested its resilience and adaptability. The company began with a vision to simplify investment options for Pakistanis, particularly freelancers with savings outside the country. However, the journey was anything but smooth. In 2021, the founder, working solo, discovered that building a viable business model in the complex financial landscape of Pakistan was far more intricate than initially anticipated. Despite securing $300,000 in pre-seed funding from friends and family, the reality of operational costs soon set in.
The company’s ambition to automate processes clashed with the slow and cumbersome banking infrastructure, which necessitated manual transaction tracking under the VPS business which was shelved thereafter. This inefficiency not only hindered growth but also became a financial burden, consuming resources and staff time. As Elphinstone attempted to scale, the lack of a sustainable revenue model became increasingly evident. With only a 1% fee on assets under management as its primary source of income, the pressure to achieve profitability mounted, particularly as operational expenses continued to rise.
The absence of a co-founder proved to be a significant hurdle during this critical phase. Without a partner to share the workload and bring diverse expertise to the table, the founder faced challenges in both strategic decision-making and operational ex*****on. Recognizing this gap, Elphinstone participated in Y Combinator’s co-founder matching program, where the founder connected with Uzair Mahmood, marking a turning point for the company. This partnership brought new energy and capabilities, allowing Elphinstone to better tackle the myriad challenges ahead.
When Elphinstone entered Y Combinator in late 2021, hopes were high for a successful fundraising effort. However, the reality was stark: while many of their batchmates received around 50 calls from interested investors, Elphinstone garnered only five. This stark contrast highlighted the challenges of attracting venture capital interest in the Pakistani market. After an arduous fundraising journey, Elphinstone ultimately raised a total of $1.1 million, but the process took a toll. Facing mounting pressure, the team was forced to make tough decisions, including layoffs, and to sharpen their focus on conserving cash. Despite these hardships, the founder remained committed, driven by a long-standing passion for transforming the investment landscape for Pakistanis.
The wealth management landscape in Pakistan:
The bigger question here is what is the scope of a digital AMC in Pakistan and how does a digital wealth management startup stand out? The traditional investment options in Pakistan remain the real estate investment and investment in precious metals, primarily gold. The more savvy and educated investors have another option: they give their money to asset management companies which then invest this money into a variety of markets such as money markets, debt markets and equities, and give the investor a return after deducting a commission.
Pakistan’s asset management landscape is characterised by significant concentration, with approximately 30 asset management companies present in the market. Some of the prominent names on the list include Al Meezan Investments, by far the largest asset management company in Pakistan having Rs 500 billion in assets under management. Other names include Faysal Asset Management, AKD Investment Management, JS Investments, IGI Funds and others.
These AMCs together have captured a market of around 500,000 investors, according to an expert, which is a staggeringly low number of investors for a population of 250 million people. This indicates a vast untapped market, especially given that the working population stands at approximately 70-80 million.
“Notably, the top five AMCs hold a staggering 90% of the market share. This concentration highlights a substantial opportunity for new entrants, particularly in the digital space,” said an expert in the digital wealth management space. “The low pe*******on rate signifies a considerable scope for growth, particularly for innovative solutions like digital asset management.”
In 2022, the Securities and Exchange Commission of Pakistan (SECP) thought it would be apt to increase this number of investors by increasing the number of asset management companies in Pakistan. According to a source at the SECP, the conventional AMCs are not focused on increasing the number of retail investors and target big investors such as corporations. The SECP also though that it was best to increase this number by allowing a new league of competitors under a new framework. This framework called Digital Asset Management Companies Framework, announced in August 2022, lets new asset management companies onboard and serve customers, all digitally.
The operations of a digital AMC would be similar to a conventional AMC. That they would also have a trustee and they would invest in different types of securities such as stocks, bonds and mutual funds. The difference would only be that with a digital AMC, the operations would all be digital. The investments of investors and payments to investors would also be digital. The AMCs would be leveraging RAAST launched by the State Bank of Pakistan (SBP) to facilitate these payments.
Now because conventional AMCs are focused more on corporate clients, their operational costs are set for a different type of operations. Digital AMCs would have the facility to keep their operations lean and reduce costs for the AMC so that the digital AMC can keep their fee low for the retail investor. It is for this cost saving that it has been proposed that the digital AMC can be set up with a paid up capital of Rs5 crore compared to the Rs20 crore required to set up a conventional AMC.
Because the costs for a digital AMC are less, and there is no restriction currently on the number of digital AMCs that can exist under this framework, these companies would be able to attract small ticket retail investors effectively as compared to a conventional AMC, which currently does not cater to small ticket retail investors because of the costs associated with serving such customers do not make sense for them. It is a lot like how conventional banks focus on corporate clients mostly and have a limited range of products for retail customers. A source at the SECP also said that there is currently no limit proposed on the assets that a digital AMC can manage.
The Trikl acquisition:
Just last week, Elphinstone completed the acquisition of Trikl Technologies, a digital asset management company (AMC) operating within the Securities and Exchange Commission’s (SECP) regulatory sandbox. The exact amount remains undisclosed but Elphinstone said that they acquired Trikl for a seven figure sum.
Now this is a company that is struggling and barely making it with a limited amount of cash. As Tirmizi told us, the $1.1 million that they raised after getting into Y Combinator, most of that money was spent. So how was Elphinstone able to acquire?
Well it was helpful that one of Elphinstone’s investors, Ahmad Jalal of Cordoba Ventures who was also an investor in Trikl, committed that if Elphinstone was able to come to terms where an acquisition of Trikl was possible, he would pump in more money into the merged entity. In fact, it was Jalal who had suggested the idea of this merger in the first place.
Elphinstone, the investment advisory startup founded in 2020, has made an acquisition. It has successfully acquired Pakistani wealth management startup called Trikl for an undisclosed seven-figure sum.
The acquisition marks a watershed moment for a startup that has seen highs and lows for the past four years. It was founded as a one of a kind investment advisory startup that is banking that one day Pakistanis would know that they can invest in countries like the US and earn a lucrative return.
Elphinstone targets individuals with a dollar income, such as freelancers, or savings in Pakistan. Most people do not realise government regulations allow you to invest $25,000 per person per year abroad, legally. Elphinstone provides platform and advisory services for people to do this.
The vision of creating a business that facilitates Pakistanis’ investments abroad, especially in the US stock market, has been a long-standing ambition for Farooq Tirmizi since 2009. Tirmizi has an impressive resume, and is a seasoned investment professional with a background working at prominent investment banks in the US. He has also worked extensively as a journalist in Pakistan, first serving as the chief financial correspondent at Express Tribune. Tirmizi has also played a significant role in shaping this publication, having served as its managing editor for four years, Tirmizi has been pivotal in getting this publication its traction and success until he left it in 2021 to pursue his passion project Elphinstone.
“I am not a startup founder because I want to be a startup founder,” Farooq Tirmizi says in an interview with Profit. “I am a startup founder because this thing should exist. Nobody else was building it so I built it.”
Things have been difficult for Elphinstone from the get-go, having faced challenges after challenges. But Elphinstone has been able to survive. And not only has it survived, it has recently acquired another wealth management startup Trikl for an undisclosed amount.
Founding Elphinstone:
Elphinstone has carved out a unique niche in the fintech landscape by enabling Pakistani investors to access the US stock market. The company is registered with the US Securities and Exchange Commission (SEC) and has already established a partnership with a brokerage firm in the United States, enabling it to offer US investment accounts to clients in Pakistan. Additionally, through its local entity, Elphinstone Pakistan, the company provides advisory services on mutual funds.
At its core, Elphinstone operates on a straightforward revenue structure: it charges a 1% fee on assets under management, charged annually on average account balances. This model allows the company to offer advisory services for US investments coupled with free trading without any commission fees, making it an appealing choice for investors looking to maximize their returns while minimizing costs. By eliminating transaction fees, Elphinstone differentiates itself in a market where many platforms impose significant charges for trading.
But until recently, investment in the US stocks had not been Elphinstone’s only revenue stream. Its Pakistan focused voluntary pension scheme (VPS) for employees working in a company was also another one of its core products. Elphinstone stopped the VPS business because of its unviability due to lack of automation in the processes. As Tirmizi explains, VPS service is active for legacy clients only at the moment and they are not actively marketing it to new clients. The service had to be offered and fulfilled totally manually, making the cost of operating a VPS business always higher than revenue generated by that business. How? Since it is all done manually, the more clients are to be offered this service, the more workforce would have to be hired, making it an expensive business in the absence of automation. This makes the VPS business a cash burning business and not the fastest path to breakeven. The Elphinstone team often had to travel across cities to get employees of their client organisations to fill in very long and tedious forms.
The US business:
The US business, on the other hand, is the fastest path to break even but one that is going to require some time to break even. Tirmizi candidly says they are not profitable yet but the growth of 20% month on month was promising. Elphinstone has been able to accumulate over a million dollars in assets under management.
Going has not been very easy for Elphisntone from the get-go. From its inception, Elphinstone faced a myriad of challenges that tested its resilience and adaptability. The company began with a vision to simplify investment options for Pakistanis, particularly freelancers with savings outside the country. However, the journey was anything but smooth. In 2021, the founder, working solo, discovered that building a viable business model in the complex financial landscape of Pakistan was far more intricate than initially anticipated. Despite securing $300,000 in pre-seed funding from friends and family, the reality of operational costs soon set in.
The company’s ambition to automate processes clashed with the slow and cumbersome banking infrastructure, which necessitated manual transaction tracking under the VPS business which was shelved thereafter. This inefficiency not only hindered growth but also became a financial burden, consuming resources and staff time. As Elphinstone attempted to scale, the lack of a sustainable revenue model became increasingly evident. With only a 1% fee on assets under management as its primary source of income, the pressure to achieve profitability mounted, particularly as operational expenses continued to rise.
The absence of a co-founder proved to be a significant hurdle during this critical phase. Without a partner to share the workload and bring diverse expertise to the table, the founder faced challenges in both strategic decision-making and operational ex*****on. Recognizing this gap, Elphinstone participated in Y Combinator’s co-founder matching program, where the founder connected with Uzair Mahmood, marking a turning point for the company. This partnership brought new energy and capabilities, allowing Elphinstone to better tackle the myriad challenges ahead.
When Elphinstone entered Y Combinator in late 2021, hopes were high for a successful fundraising effort. However, the reality was stark: while many of their batchmates received around 50 calls from interested investors, Elphinstone garnered only five. This stark contrast highlighted the challenges of attracting venture capital interest in the Pakistani market. After an arduous fundraising journey, Elphinstone ultimately raised a total of $1.1 million, but the process took a toll. Facing mounting pressure, the team was forced to make tough decisions, including layoffs, and to sharpen their focus on conserving cash. Despite these hardships, the founder remained committed, driven by a long-standing passion for transforming the investment landscape for Pakistanis.
The wealth management landscape in Pakistan:
The bigger question here is what is the scope of a digital AMC in Pakistan and how does a digital wealth management startup stand out? The traditional investment options in Pakistan remain the real estate investment and investment in precious metals, primarily gold. The more savvy and educated investors have another option: they give their money to asset management companies which then invest this money into a variety of markets such as money markets, debt markets and equities, and give the investor a return after deducting a commission.
Pakistan’s asset management landscape is characterised by significant concentration, with approximately 30 asset management companies present in the market. Some of the prominent names on the list include Al Meezan Investments, by far the largest asset management company in Pakistan having Rs 500 billion in assets under management. Other names include Faysal Asset Management, AKD Investment Management, JS Investments, IGI Funds and others.
These AMCs together have captured a market of around 500,000 investors, according to an expert, which is a staggeringly low number of investors for a population of 250 million people. This indicates a vast untapped market, especially given that the working population stands at approximately 70-80 million.
“Notably, the top five AMCs hold a staggering 90% of the market share. This concentration highlights a substantial opportunity for new entrants, particularly in the digital space,” said an expert in the digital wealth management space. “The low pe*******on rate signifies a considerable scope for growth, particularly for innovative solutions like digital asset management.”
In 2022, the Securities and Exchange Commission of Pakistan (SECP) thought it would be apt to increase this number of investors by increasing the number of asset management companies in Pakistan. According to a source at the SECP, the conventional AMCs are not focused on increasing the number of retail investors and target big investors such as corporations. The SECP also though that it was best to increase this number by allowing a new league of competitors under a new framework. This framework called Digital Asset Management Companies Framework, announced in August 2022, lets new asset management companies onboard and serve customers, all digitally.
The operations of a digital AMC would be similar to a conventional AMC. That they would also have a trustee and they would invest in different types of securities such as stocks, bonds and mutual funds. The difference would only be that with a digital AMC, the operations would all be digital. The investments of investors and payments to investors would also be digital. The AMCs would be leveraging RAAST launched by the State Bank of Pakistan (SBP) to facilitate these payments.
Now because conventional AMCs are focused more on corporate clients, their operational costs are set for a different type of operations. Digital AMCs would have the facility to keep their operations lean and reduce costs for the AMC so that the digital AMC can keep their fee low for the retail investor. It is for this cost saving that it has been proposed that the digital AMC can be set up with a paid up capital of Rs5 crore compared to the Rs20 crore required to set up a conventional AMC.
Because the costs for a digital AMC are less, and there is no restriction currently on the number of digital AMCs that can exist under this framework, these companies would be able to attract small ticket retail investors effectively as compared to a conventional AMC, which currently does not cater to small ticket retail investors because of the costs associated with serving such customers do not make sense for them. It is a lot like how conventional banks focus on corporate clients mostly and have a limited range of products for retail customers. A source at the SECP also said that there is currently no limit proposed on the assets that a digital AMC can manage.
The Trikl acquisition:
Just last week, Elphinstone completed the acquisition of Trikl Technologies, a digital asset management company (AMC) operating within the Securities and Exchange Commission’s (SECP) regulatory sandbox. The exact amount remains undisclosed but Elphinstone said that they acquired Trikl for a seven figure sum.
Now this is a company that is struggling and barely making it with a limited amount of cash. As Tirmizi told us, the $1.1 million that they raised after getting into Y Combinator, most of that money was spent. So how was Elphinstone able to acquire?
Well it was helpful that one of Elphinstone’s investors, Ahmad Jalal of Cordoba Ventures who was also an investor in Trikl, committed that if Elphinstone was able to come to terms where an acquisition of Trikl was possible, he would pump in more money into the merged entity. In fact, it was Jalal who had suggested the idea of this merger in the first place.
The Trikl acquisition aims to bolster Elphinstone’s offerings to provide a comprehensive suite of investment and savings solutions tailored to the needs of Pakistani investors. Elphinstone’s acquisition aligns with its goals to provide a full spectrum of savings and investment options for Pakistanis. Elphinstone recognizes that while some Pakistanis have access to US dollars, the majority do not. Therefore, the Trikl acquisition aims to bridge this gap and cater to the investment needs of the local population.
“We want to ensure that whenever anyone in Pakistan seeks to save or invest, we have the right product to meet their needs,” Farooq Tirmizi said. “This acquisition is a crucial step toward that goal.”
Trikl Technologies operates two money market funds and currently holds a pilot license for digital asset management within the Securities and Exchange Commission of Pakistan regulatory sandbox. While the full regulatory license is still pending, the company boasts a portfolio of existing tech and financial products, along with assets under management.
Elphinstone’s decision to acquire Trikl instead of developing its own capabilities from scratch stemmed from a combination of strategic necessity and resource constraints. At the time of the acquisition, Elphinstone was grappling with limited cash reserves and a pressing need to achieve profitability. The prospect of building the required technology and obtaining necessary licenses independently would have involved a lengthy and costly process, potentially diverting attention from core operations and further delaying financial stability.
Acquiring Trikl offered immediate access to essential technology that interacted with legacy infrastructure in Pakistan’s capital markets. This technology was crucial for streamlining processes and improving user experience, which Elphinstone had struggled to achieve on its own. By integrating Trikl’s existing systems, Elphinstone could bypass the time-consuming development phase and leverage established functionalities that would allow it to scale more quickly.
Moreover, Trikl’s acquisition came with the advantage of an operational license, something that would have taken Elphinstone significant time and resources to obtain on its own. In the fast-paced world of startups, time is a critical factor, and every month spent waiting for regulatory approvals could mean thousands of dollars in operational burn. The acquisition positioned Elphinstone not only to consolidate its resources but also to enhance its competitive standing in a rapidly evolving fintech landscape in Pakistan.
Additionally, the acquisition represented a strategic move in a market that was experiencing consolidation. As smaller players struggled to remain viable, Elphinstone recognized the value in being among the last men standing. This not only increased its brand value but also positioned it as a key player in the market, capable of offering a comprehensive suite of services that would better serve its clients and attract new investors. Ultimately, the acquisition of Trikl was a calculated decision to accelerate growth and operational efficiency, laying the groundwork for a more sustainable future.
The acquisition of Trikl Technologies marks a pivotal step in Elphinstone’s strategy amidst a wave of consolidation within Pakistan’s fintech sector. With the growing trend of mergers and acquisitions, Elphinstone positions itself as both an acquirer and an operator in the market, aiming to navigate the current landscape that may see only a few key players emerge as leaders.
“Fintech consolidation is on the rise, and our goal is to become a significant player in this evolving market,” said Farooq Tirmizi, the founder and CEO of Elphinstone. “We believe this shakeout will result in a handful of last men standing, and we intend to be among them.”
