Investment Banks Are Now Turning To 'Infrastructure As A Service': Here's A Major Player In The Sector And How It Works

Benzinga is hosting its Global Fintech Awards at New York City’s Pier Sixty, Dec. 8, 2022. At the event, the likes of Kevin O’Leary and Anthony Scaramucci, as well as leaders at DriveWealth, Prime Trust, Synctera, and beyond, will talk about controversial topics, perspectives on opportunities and threats in fintech, as well as share insight into how they’re monetizing on disruptive trends.

Ahead of this, Benzinga will periodically publish articles on those it sees are making big impacts. Today’s chat is with Federico Baradello, the founder and CEO of Finalis.

The following text was edited for clarity and concision.

Q: Hey Federico, nice to meet you. Want to kick it off with an introduction?

Federico Baradello: I spent a number of years in San Francisco doing middle-market technology company buyouts for private equity funds like Vista Equity Partners and Silver Lake.

After a while, I realized there was a central irony in my day-to-day job, which was that we were doing all these great tech buyouts on the one hand, but we were leveraging a 30-year-old tech stack, on the other hand, to actually execute those transactions.

That culminated in an obsession around how to bring digital transformation to what I would call kind of the legacy capital market space.

Okay, what were some early realizations after getting started on the venture?

There was a tremendous opportunity in digitizing our workflows.

To be relevant in digitizing the workflows across the stack, we realized that we needed to start from the moment of inception of those workflows, or the investment bank itself.

And, then, to get into the investment bank, at high velocity, and at scale, we saw that there was a tremendous opportunity to emulate the go-to-market strategies of companies like Compass Inc COMP in the real estate brokerage sector.

That's effectively what we decided to build.

At its core, what is Finalis?

Finalis is really a category-creating, first-of-its-kind business that delivers turnkey Infrastructure as a Service (IaaS) for investment banks, placement agencies, independent securities brokers and even fintech businesses across the U.S. today.

Since we launched the business in May 2020, we've become the fastest-growing independent broker-dealer operating in this segment of the market.

We're supporting over 150 investment banks, placement agencies, and independent dealmakers.

We're quickly coalescing the long tail of this industry on our regulatory and compliance rails that are fully based in the cloud.

Given that you’re so new, how do you build trust?

We actually handicapped our growth as a direct consequence of the importance of scaling that trust layer in a way that's sustainable.

We do that in a variety of ways.

One way that we do that is we actually engage in a membership interview process for all new investment bankers that join the Finalis platform.

How were the early days at Finalis? How did you initially get the message out there?

I would say that our first customers were the direct consequence of an outbound email campaign I was sending.

I leveraged LinkedIn sales navigator and identified small boutique investment bankers and was sending out lots of emails. Pretty quickly, we realized that we were starting to generate some notoriety.

Today, most of our new investment banks actually come in from word of mouth and our own inbound marketing efforts.

How do you actually make money?

Finalis has a two-track revenue model.

We charge monthly subscription fees. You can think of this as software licensing fees just like any other SaaS business. Those fees range depending on the size of the investment banking boutique as well as their level of confidence over their ability to close deals.

We also charge commission fees that range. The investment bank can pick a plan that is best aligned with their appetite to perhaps take on some liquidity exposure on a month-to-month basis in exchange for a lower commission.

What are some of the costs involved in running such a business?

A lot of our software build-out is focused on enabling the scalability of our Compliance as a Service platform.

Here, the efficiency is focused on data and information gathering. Then, the other is how do we deliver a more time-efficient workflow for the investment banker.

Currently, the investment banker, or at least before Finalis, was using email-based workflows in order to interact with their compliance officer.

We've revolutionized that, taking those workflows directly into a cloud environment where it's streamlined. Only the information that needs to be provided is at the time requested.

Given the market environment, what are you concerned about and how do you assuage some of those concerns?

Based on the conversations that we've been having, there is a strong degree of conviction that even though capital seems to be sitting on the sidelines during this period, it will be coming off the sidelines well before the end of this year.

I'm expecting Q4 to look very different than Q3. But, obviously, we're living in a very dynamic picture, so it really remains to be seen.

What’s the takeaway you want readers to come away with?

The zeitgeist these days has been focused on retail applications of fintech.

Finalis represents a category-creating business delivering core innovation to the investment banking space, which we think is going to be more and more in focus.

This is, particularly, in a recessionary context where recessions have been the periods of time when most people think about setting up their own boutique investment bank.

So, it's actually counter-cyclical from that perspective. And so we do think that there's going to be more attention focused here, and we're excited to begin to tell our story.

Photo: VideoFlow via Shutterstock