Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Fantasy Gaming for Trading & Investing | Raghu Kumar @ Rain Platforms
262 Plays2 years ago
Did you know that only 4% of Indians have a Demat account? Compared to that, 40% of Americans have a Demat account. This is the massive opportunity that Raghu Kumar is chasing with his second venture - Rain Platforms. The goal is to make the intimidating world of trading more comfortable. Raghu talks about some of the innovative platforms that Rain is building to help more Indians become active investors, including a platform for copy investing and a real money gaming platform for mock trading.
Know about:-
- Hedge funds
- Social investing platform, Trading Rooms
- Guaranteed price pool
- Capital raising strategy
Recommended
Transcript
Introduction and Entrepreneurial Journey
00:00:00
Speaker
Hi, I'm Raghu. I founded Upstocks, and after Upstocks, I founded Rain Platforms.
Investment Opportunities in India
00:00:18
Speaker
Did you know that only 4% of Indians have a DMAT account? Compared to this, 40% of Americans have a DMAT account. This is
Transition from Upstocks to Rain Platforms
00:00:28
Speaker
the massive gap and opportunity that Raghu Kumar is chasing with his second venture, Rain Platforms. This is part 2 of Akshadat's conversation with Raghu Kumar and in part 1, they covered Raghu's journey of building the fintech unicorn up stocks.
00:00:42
Speaker
In this episode, Raghu talks about some of the innovative platforms that RAINN is building to get more Indians to become active investors, including a platform for copy investing and a real money gaming platform for mock trading. Listen on, and if you like such insightful conversations with disruptive startup founders, then do subscribe to the Founder Thesis podcast on any audio streaming app.
Balancing Work in India with Life in the US
00:01:04
Speaker
Upstocks is an Indian company, right? And all its customers are in India. One of the requirements for the company essentially was you have to be in India. It's just the nature of the business and it would be wrong. If you're an addict, then you have to be in India.
00:01:20
Speaker
Yeah, it would be almost wrong to be involved with a company with more than 10 million users now, spending most of your time out of the country. So I think at a certain moral level, ethical level, I felt like it would not be correct for me to
00:01:40
Speaker
be in India or sorry, be involved with an Indian company full-time. So that was a primary reason. What did you move back? You had come to India full-time, right? Lock, socket, barrels. Yeah. So I moved back because my kids were going to school in the US, right? So I was doing this thing where I was spending half the time in India, half the time in the US, and at a certain point, it just became ridiculous. It was not sustainable, right?
00:02:10
Speaker
So that was really the primary reason. There was a secondary reason as well. Essentially, we had four co-founders and I've always been the kind of person where I need to feel like the things that I'm doing every day really move the needle for a company. And if there's four co-founders, for me personally, that's not something that I wanted to do. So I basically said, hey guys, I'm going to probably just step down from the operational team. And I moved back a couple of years ago, right?
00:02:39
Speaker
So two
Launch and Evolution of Rain Platforms
00:02:40
Speaker
years ago, moved back and I set up my next company, Rain Platforms. When did the fourth co-founder come in? You started with three of you, right? Like the two are the one S3. Yeah. So we had a fourth co-founder, John, I want to say 2017. Obviously everyone has, is bringing incredible amounts of value and experience to the table. It's not anything negative. It's just that me personally,
00:03:05
Speaker
being from the US, my kids going to school in the US, my second child had just been born. I was like, okay, I probably need to make some changes and this is probably a good time for me to do that. So yeah, so I moved back and I had this kind of vague idea of starting another company. So the first thing I did was I incorporated the company and I called it Rain because I just loved the idea of making it rain. So that was the reason for the naming of the company. Rain basically has
00:03:34
Speaker
pivoted a couple of times, but initially the idea was for us to launch a retail hedge fund. How is a hedge fund different from other ways in which somebody can invest money? Yeah. So a hedge fund basically is when you have some sort of a management company
00:03:56
Speaker
making decisions to drive an ROI on behalf of others' capital. So you put money into the fund and then you have a fund manager and then the fund manager makes decisions and the driver turns. Usually, there is a management fee and a performance fee. Hedge funds exist all around the world. The thing with hedge funds though is that
00:04:21
Speaker
it's usually limited to the ultra rich. When you think about hedge funds, we don't think about the everyday mom and pop having access to hedge funds. Now, in India, you have different types of investment vehicles. You have what are called PMS's. The next step above that is AIF, which your net worth has to be in the crores. But even with the PMF, the minimum deposit is 50 lakhs. And a PMF is also
00:04:48
Speaker
allowed to do certain things and not allowed to do other things. So PMF, for example, cannot trade derivatives and a lot of rules exist. Now, the way we operated RAIN, and back then it was called RAIN fund because the idea was to mimic a hedge fund, but it actually wasn't a fund at all. What happened was
00:05:09
Speaker
Our clients were depositing anywhere between 10 to 25 lakhs. So we were trying to basically lower the entry point, but the clients were actually managing their own accounts. So let's say you had an account with up stocks.
00:05:28
Speaker
you would fund it and then you would activate your broker's API and you would securely transfer the credentials to your API to us. And what we would do is we would build fully automated algorithmic trading strategies and run that as a software on each of our clients' accounts.
00:05:50
Speaker
So that was the whole idea behind Rainfund. The idea was actually to democratize the whole concept of a hedge fund and really make it more accessible.
Challenges and Pivots in Trading Strategies
00:06:00
Speaker
So we ran that for more than a year. We generated very good returns for our clients. Question here. It was a one size fits all algorithm or was it customized to each investor? How did you tell me about that? Yeah, there was no customization.
00:06:16
Speaker
So we literally ran a standalone application on each client's account. This was due to multiple reasons. The biggest reason was just that we didn't want the client to actually have that kind of control because if you do that, it basically opens up a Pandora's box. And then the question really becomes who's responsible for the decision-making.
00:06:43
Speaker
Right? Number two was just to make it very compliant and very almost like cookie cutter-ish in a certain way. It's an application. It's running fully automated trading algorithms.
00:06:56
Speaker
either you take it or you don't. Much more scalable and it did its job very well. And the cool thing about what we did was our software was basically broker agnostic, right? As long as the broker had a broker API and the user was able to securely share just their API credentials with us, then we were good to go, right? Long story short, we did very well. We generated more than a 35% CAGR for our clients, but
00:07:26
Speaker
What were your assets in the management? That's the issue. I think at the peak, we had almost 500 clients. Average ticket size was not much, so 25 lakhs. So the AUM was never high and it was never going to get high because we were never going to take on
00:07:46
Speaker
a lot of capital from anyone because that's just model that we had. Because what happens when you do that is liquidity concerns. Our strategies were trying to take advantage of opportunities which did not exist for very long. So if you have one guy coming in with like corors of rupees, it's basically unfair to everybody else. Because this one guy is taking up so much liquidity. But because of all those constraints, the business was basically not sustainable, number one.
00:08:15
Speaker
Number two, it really made me think about whether this is what I wanted to do. So I had to go back to that question because at a certain level we were democratizing things, but.
00:08:27
Speaker
On another level, we were not because the minimum ticket size was still 10 lakhs. It's not like super retail. It's basically like middle-class plus. Exactly. H&I juniors. Then we pivoted to creating a marketplace for
00:08:48
Speaker
fully automated algorithmic trading strategies. And these strategies were built by us and also other quants, right? So one good thing that we did was a company which builds algorithms and does quantitative trading or quantitative strategies for trading is called a quant.
00:09:05
Speaker
A quant is traditionally actually an individual, it's just a person. So yeah, like when you hear the word quant, it's usually like just one person who is building quantitative investing or trading models. If it's a firm, it'll be like a quant firm.
00:09:21
Speaker
So what we did was we built a really cool marketplace. We had an Airbnb for trading strategies. Basically you would come in, people would list strategies and then
00:09:38
Speaker
you could come in and you could subscribe to them. And once you subscribe to that strategy, it automatically gets deployed on your map brokerage. So we ran that for six months, did very well. And that basically morphed into our first product offering, which is called Trading Rooms, right?
00:10:01
Speaker
So trading rooms
User Engagement and Market Influences
00:10:02
Speaker
basically, it's essentially the same thing that I just described, except it's not just for algorithmic trading, it's also a discretionary trading. So the pain point that we're solving with trading rooms is that if you want to trade on your own, it's very difficult. Generally, people don't have the time or the resources to really figure out how
00:10:24
Speaker
how to trade the markets efficiently and profitably. But there exist a lot of traders out there who do this full-time. These guys are both discretionary traders and algorithmic traders, right? So on trading rooms... A discretionary trader is somebody who would do research and say, okay, it could be based on news events or could be based on fundamental research or technical analysis and would pick stocks. A stock picker would be what that refers to.
00:10:53
Speaker
Yeah, discretionary trade is basically anyone who's not trading algorithmically. Most people out there are just buying and selling in a discretionary manner. They're just making decisions based on what they think is the right decision to make. So when the human brain is making that decision, it's discretionary basically.
00:11:12
Speaker
So on trading rooms, the concept is any trader can come in, they can create a room. And once they create a room, then they can start trading on that room. Their trades are done in a simulated manner. Basically, there's no live execution happening, but the track record is being maintained on their room. And then other people can come in, they can discover these rooms, and they can subscribe to them, right?
00:11:42
Speaker
So the use case is, let's say you are a retail trader right now trading on your own and you want to basically show off your skills and you want to monetize that service, then you can come in, you can create a room on trading rooms and whenever you trade, your track record gets updated.
Algorithmic Trading Challenges in India
00:12:01
Speaker
I can discover you, I can subscribe to you, you can charge for your room. And then whenever you take a trade, that trade gets taken on my account.
00:12:09
Speaker
So this phenomenon is called copy trading. It's a pretty well-known concept. There's a pretty well-known platform called eToro, which is doing this very successfully in Europe and in the US. So basically trading rooms is like the eToro for India. So we launched trading rooms a few months ago in beta. It's doing very well. We're launching a mobile version for trading rooms in March of 2023.
00:12:37
Speaker
So we think once we launch the mobile app, Traction will pick up significantly. Yeah, so that's a little bit about trading rooms. What's a customer journey for trading rooms? Like first, they would sign up with any of the brokers who have an API available, put in money over there and just talk to me through that journey for a customer.
00:12:54
Speaker
Yeah. So the typical trading room's customer journey right now, unfortunately, it's a very niche user persona because one of the current basic requirements is that you are aware of what automated trading is. Generally, people are not super comfortable
00:13:19
Speaker
A, opening up a brokerage account, B, activating the broker's API, and then C, going to trading rooms, subscribing to that room, and then linking their brokerage account. There's a lot of hoops to go through. So people who are aware of what automated trading is, they find value in trading rooms.
00:13:40
Speaker
Also, a lot of the traders who are operating rooms on trading rooms, they end up talking about their rooms to their existing networks. So a lot of traders in India, going back to Twitter, they build up brands on Twitter.
00:13:59
Speaker
Yeah, influencers in the way that like, yeah, exactly. Influencers, right? So like they're not getting paid by other agencies, but they're influencers in the sense that they're traders who know what they're doing, right? They're full-time traders, essentially. This is what they do for a living. And so they're trying to build up a brand. So a lot of these traders, they find value in trading rooms, they set up a room, and then they'll go to their social media and talk about it.
00:14:23
Speaker
So that's the one customer journey. We also have a very active telegram group right now where people ask questions and they invite their friends and things like that. But it's still very much in beta right now. And we're purposely keeping it that way because, again, with algo trading, a lot of things can go wrong. That's one of the issues with algo trading. It's not just about
00:14:45
Speaker
The algo itself, it's also about the broker's execution capabilities, their RMS, their API. Even if only three or four brokers in India have super sturdy APIs, a lot of people don't have accounts with those brokers. They may be having an account with another broker. And that broker might have just launched their retail API maybe a couple months ago.
00:15:09
Speaker
So issues come up and what we always try to do is build the right fail safe mechanism so that even if something goes wrong, which is outside of our control, we can then maybe square off the position right away or intimate the customer and let them know that, hey, something is wrong. You might want to take action. Those are the types of things that we're trying to do. But again, it's an iterative process.
00:15:33
Speaker
Why not try and build alliances and have trading rooms within broker apps? So that is something we have thought about, but that also removes a lot of the friction. It removes friction, but there are issues with that. So number one,
00:15:50
Speaker
Most brokers are not going to be super comfortable with promoting an application such as ours, unfortunately, as things stand right now because algo trading is still one of those areas which SEBI has not given a complete stamp of approval on. There's a lot of things that we cannot do. For example,
00:16:14
Speaker
on trading rooms, we are not allowed to showcase the performance of any room. So that's due to a SEBI circular, which essentially says that these third-party platforms are not allowed to do that, which is enabling fully automated trading as a third-party platform. You cannot explicitly showcase the ROI of the room owner.
00:16:39
Speaker
So what ends up happening there then is the room owner is tasked with the objective of basically getting their followers to become aware of the room. It's not a deal breaker at all. In fact, in certain ways, they would share their ROI on social media and all, but they can't share it on trading rooms. Exactly. Exactly. Which in certain ways,
00:17:01
Speaker
might be the right way to do it. Because when you think about introducing biases and things like that, when it's coming from the horse's mouth essentially, and not from the third party, even though we're not trying to mislead anybody, we're not showcasing anything which is wrong,
00:17:19
Speaker
Unfortunately, other third-party applications, they don't disclose the right P&L. The P&L that's shown on trading rules is the actual P&L, right? We don't sugarcoat anything, but a lot of these third-party platforms, they don't do that, unfortunately. So because of that, we have certain work grounds. But I think to answer your question, it's also about what do we stand for? And I think one thing that we stand for is we don't want to really promote any one broker or the other.
Increasing Investor Participation in India
00:17:47
Speaker
One of the major reasons that started to rain was to not be tied down to one broker, right? In the sense that there are many brokers out there and we don't want to be operating at that level. We want to be operating at a meta level above that and build solutions around that whole environment.
00:18:05
Speaker
But trading rooms is actually just the first product, right? I talked about a rain platforms and what we're trying to solve. The reason for the company's existence is that we are trying to increase investor participation rates in India, period. Me and my co-founder, we've been around the capital markets like our entire professional lives. So my co-founder
00:18:26
Speaker
His name is Harsh. He basically launched one of India's first offshore Dimasalp hedge funds coming from India. So basically of Indian origin, his hedge fund was one of the first hedge funds to be Dimasalp outside of India. And so he comes from the fund management space as well. And so we're both very passionate about increasing investor participation rates. And one thing we've noticed
00:18:54
Speaker
especially in the trading and investing community, is there is a bubble that we live in when we are in this space. If you are affiliated with financial markets or investing or trading or any sort of wealth management solution, you're mostly interacting with people within that space for the most part. You speak a different language, so it's a layman who is struggling to understand
00:19:23
Speaker
Yeah. The analogy would be like if you're an athlete, you're going to be speaking to athletes or people who get to the sports world. Even if you're not directly speaking to athletes, people who are affiliated with that space, right? But the reality is going back to that investor participation rate, less than 4% of the population has a DMAT account period.
00:19:44
Speaker
Now, if you ask the average person out there, do you know what the stock markets are? Just a very point blank question, or do you know what the share bazaar is? They'll say yes. People know what the Wall Street is. People have seen all the famous movies. They know who Harshad Mehta is. They've seen Guru and all these movies and stuff. People are aware.
Introduction of Trading Leagues Platform
00:20:06
Speaker
They know what the Sensex is.
00:20:09
Speaker
And so then why is that disparity there? And I think the lazy answer when it comes to growing investor participation rates is that you have mutual funds, just get people to put their money into mutual funds. But when you think about it, you're asking someone who knows
00:20:27
Speaker
It's nothing about nothing to put their hard-earned money into. It's a really preposterous idea. That's not how we work as human beings, right? If you're asking me to be involved in any activity in my life, I'm going to read up on it, or I want to be taught something about it in school, or I want to become something because once I have some sort of perception of it, then I can make
00:20:50
Speaker
a better informed decision. You cannot just throw that ROI number to me and be like, hey, put your money into mutual funds, you're going to make X percent per year on average. Because first of all, that's not guaranteed, obviously. And because it's not guaranteed, I am not actually aware of those risks because I've never been exposed to them because I don't know
00:21:11
Speaker
what the reason for those risks are. I don't understand stock market prices, how they move, why they move, things like that. So what we did basically around eight months ago, my co-founder and I, was we started working on our second product. And our second product is called Trading Leagues.
00:21:34
Speaker
So trading leagues is basically a fantasy gaming platform for trading and investing. So the equivalent is like other fantasy sports applications, let's say Rummy or Dream11 India, or you have DraftKings and FanDuel in the US.
00:21:56
Speaker
And all these platforms, what's happening is you're not physically buying or selling anything, right? Like on Dream11, you're not buying a cricket player, obviously, right? You're building a simulated cricket team and your cricket team is competing against other people's crickets teams. And the best performer cricket team wins, right? It's a skills-based activity and you can also make money from it, but you can also play for free.
00:22:21
Speaker
The same idea is what Trading Leagues is all about. So basically on Trading Leagues, we're launching the app in a few weeks, but basically it's going to have four different types of games and you're dealing with real-time stock prices, but it's not just stocks, it's also cryptocurrencies and other
00:22:42
Speaker
financial markets as well. And in the process of playing these games, you're basically learning about how stocks move. And these are both free games and paid games. The paid games, the entry fees can be as low as 25 rupees. And the whole thing is competitive, hyper competitive. So you're competing against other people real time. So the bet here that we're making with trading leagues is that
00:23:08
Speaker
This can become essentially the mass gateway product for the average person out there who is just not interested in opening up a brokerage account. I cannot fault that person for not opening up a brokerage account as much as I want to. I'm still
00:23:27
Speaker
very large shareholder of up stocks. And it would be awesome for me to say, hey, open up a brokerage account. If you don't, what's wrong with you? But that's not the way humans work, right? Because people factor in all the information they know and what they... And
00:23:43
Speaker
genuinely what they know about something. And based on that, they make a rational informed decision. As much as I want to say that person is being irrational, that's very lazy for me to say that. And the reason people don't open our brokerage accounts is because you're asking them to do
00:24:01
Speaker
like numerous difficult things, like just the idea of moving enough money to a brokerage account is a big deal for many people. Because you're not moving like a thousand rupees, you're moving tens of thousands, if not sometimes lakhs of rupees. For many people, that's a big deal. And even before they take that first trade, they're already psychologically in the red.
00:24:25
Speaker
Because it's not like they're jumping with joy when they move that money. They're moving that money with a certain amount of anxiety and stress. And then you're asking them to know how to trade, how to make trading decisions and not get stressed. So due to all those reasons, we think a product like Trading Leaks can really, really get a lot of people excited about the financial markets. Interesting.
00:24:49
Speaker
Help me understand the difference between a free game and a paid game here. Yeah. So a free game is literally free. You play the game. There's no money transfer at all. In a paid game. In a free game also you have like the leaderboard and all of it. And like you, let's say you have a 10,000 rupee kitty to invest and whoever makes them. Like what you did in your school assignments. Exactly. Right. So it's just like the school assignment game.
00:25:16
Speaker
You're competing against people. There's a leaderboard. In version one, there's no chat, but in version two, you're going to have a real-time chat. People can chat and share their thoughts. You're seeing real-time prices come through. So I'll give you one of the examples of the games, right?
00:25:30
Speaker
So the most simple game on trading leagues is called Battle Leagues. And on Battle League, basically, it's a matchup of two stocks and you come in and you pick which stock you think is going to outperform the other. And the game has a game duration. There's a start time, there's an end time, and all you're doing is basically
00:25:52
Speaker
saying, okay, based on whatever I know about these companies, I think stock A will outperform stock B. So you might have Twitter versus Facebook, you might have Apple versus Google, Ethereum versus Bitcoin, or Zomato versus PTM. Matchups of all sorts.
00:26:10
Speaker
So in a free game, there's no entry fee, right? So you're just playing the game and in that process, you're seeing the prices go up and down. We're also trying to teach the users the very basics of how stock prices move and why they move and things like that. In a paid game, there's an entry fee associated, right? So basically you're coming in and you're paying that entry fee. And then what we're doing is we're pooling all those entry fees together and we're creating a price pool. And then all the people who pick the winning stock
00:26:40
Speaker
that price pool gets dispersed to them. So it's the most basic form of hooling money and then paying it out to the winner. So that's a battle. The second league type is called target. In a target league, basically each game involves one company and you are predicting the future price of that company.
00:27:01
Speaker
Right? So for example, let's say you're dealing with a Reliance Industries and let's say Reliance is trading at 1000 rupees at 930 in the morning. And let's say the game goes up to 3 PM. You'll have a bunch of different price brackets.
00:27:18
Speaker
Right? Let's say the entry fee is 25 rupees and you have 10,000 people participating in the game. So that means the whole price pool is 2.5 lakhs. And let's say out of the 10,000 people, 1,000 people pick the correct price bracket, then that 2.5 lakhs gets dispersed to those thousand people. Okay. So that's target. The third game type is called selection and a selection league basically
00:27:45
Speaker
you're building a portfolio of stocks between four to six stocks, and then you can apply leverage to up to two stocks. And then everyone's portfolio basically competes against each other in a simulated manner. Obviously, all the transactions are done in a simulated way. The fourth game type is called Classic.
00:28:04
Speaker
And on a classic league, basically you're trading off of a chart. So you're getting introduced to the idea of charting, and then you're buying and selling throughout the day. And then the person who performs the best basically wins the entire price pool, right? So each league is teaching you something. Trading off a chart. What does that mean?
00:28:21
Speaker
So trading off a chart basically means like if you open up, let's say, zero that kite or open up up stocks pro and you go to the chart, right? You can actually place a buyer sell on the chart, right? So basically like you're looking at the chart and you're making a decision to buy or sell. You're not like opening up like the price moving up and down.
00:28:44
Speaker
Yeah, exactly. Like a bar chart, right? If you have ever seen like any sort of a bar chart, you'll see the green or the candlesticks, right? It's the green candle, red candle. If it's a green candle, that means it's gone up during that interval. The red candle has gone down. So you have these, you know, like a bar chart and charting is very powerful to trading. Like most traders
00:29:06
Speaker
especially intraday traders, they're looking at charts. So this is a gentle, easy way to introduce the user to what a chart is basically. And then you can basically click on the buy button whenever you think
00:29:22
Speaker
this is a good time to buy. So let's say
Monetization and Operational Strategies
00:29:24
Speaker
the classic league involves Bitcoin. Bitcoin is very volatile these days because of FTX. Bitcoin is moving all the time. Very volatile. So you want to have a classic game which runs 24 hours, let's say from midnight to midnight, and
00:29:40
Speaker
Everyone comes in, if it's a paid game, they pay their entry fees. And then you see the real-time chart going up and down. You can also apply some very basic technical indicators and things like that. So all that is included on the app. And then once you think it's a good time to buy, you go in and buy or you sell. So yeah, so trading leaks is what we're launching. And there's the one who makes the most profit.
00:30:01
Speaker
Exactly. Yeah. So we have different reward distributions. One is a winner takes all. So usually in a classic league, the winner will be a winner takes all, but we might have a first place, second place, third place, and then yeah. So that's the basic idea.
00:30:18
Speaker
Does this for, is this categorized as real money gaming, which would then put some restrictions that I believe Play Store, App Store don't allow real money gaming apps to be published? So those rules have actually changed as of the past couple months. So if it is a real money gaming app, which involves skill, which this clearly is, then we are allowed to publish this on the Play Store.
00:30:45
Speaker
So yeah, so trading leagues will be on the Play Store. We're making the submissions, I want to say in less than two weeks. And then there's a process, like a 30 to 60 day process for it to get approved. And then it will be available on the Play Store and the Apple App Store as well. Okay. Okay. And if a teacher wants to use this for her class, so is there a way to have a cohort based approach here? Yeah. A teacher can.
00:31:12
Speaker
use it as it is right now. But if a teacher wants to specifically, let's say, create a competition just for the class, that is going to be happening in version 2. So in version 2, we're going to allow for the ability for publishers to come in
00:31:31
Speaker
and create their own private leagues. And with a private league, basically, it's an invite-only system. And you can specify everything about that league. So whether it's free, paid, which companies you want to be listed. So if you're doing a battle, for example, you can specify the companies. If you're doing selection, you can specify the universe of stocks and things like that.
00:31:53
Speaker
going to be in version two, which will be launched actually very quickly after version one. Version two is also going to have a lot more asset classes. So version one will have access to Indian stocks, US stocks, and cryptos. So one of the major things we also want to do with trading leagues is
00:32:11
Speaker
people think about the stock markets, they think about their own country's stock markets, obviously. It becomes one of those kind of obvious things because I cannot invest in other countries' stock markets. But because of that assumption,
00:32:25
Speaker
we never get exposed to other countries' stock markets. You probably, I'm guessing, never seen a Brazilian stock in your life. You've never seen a Brazilian stock go up and down. Why would you? But that's unfortunate. Toyota, for example, I believe trades on Japan's exchange, and yet I've never seen Toyota prices go up and down. So we're also trying to expose
00:32:48
Speaker
different stock markets. And so the idea is to really criticize things and everything comes back to investor participation levels. Our bet is that...
00:32:57
Speaker
once people start using trading leagues, then at some point in time when they feel at the time is right, they may and actually open up a brokerage account. And our kind of longer term vision here actually is actually a lot of trading leagues users would go to trading rooms, right? Because now they have money to open a brokerage account, they can fund it. But even there, the same pain points exist.
00:33:22
Speaker
people don't have time to actively trade the stock market because they have jobs and things like that. And so they can actually use the same login ID on trading rooms and trade over there. So that's the thought process. Yeah. How do you monetize? I'm guessing in trading leagues, some percentage of the money collected for a paid game would be kept by you. Like you would have something great over there. Exactly. Exactly that.
00:33:46
Speaker
Just like other similar types of skills-based games, we take a percentage and this is a pretty well-known business model. Same business model gets used by DraftKings FanDuel and other gaming apps in the U.S. And trading rooms, we take... What is that percentage range? What does it range between?
00:34:05
Speaker
So it's going to be close to 20%. But what happens is it actually depends on the game because there is a concept known as a guaranteed prize pool. So guaranteed prize pool basically means regardless of the number of players participating, there is a prize pool. So when I join a game,
00:34:33
Speaker
If I see that there's a guaranteed price pool, it increases the likeliness of me joining that game. Because in my mind, it's all nothing to lose. Even if enough players don't play, I can win. But because we're taking on that risk on a guaranteed price pool, then our percentage also goes up. So obviously, this is all going to be disclosed on the app and the game will clearly specify what that percentage is. But it really depends on the game. Yeah.
00:35:02
Speaker
And then on trading rooms, we take a percentage of each room's subscription fee. Okay. And typically, what is the subscription fees? Subscription fees, again, this is a compliance thing. It cannot be a profit share. It has to be either a monthly or quarterly fixed amount. It usually ranges in the thousands of rupees. Now, the way we've done that also is we have tried to be very fair so that
00:35:30
Speaker
Let's say I'm the room owner and I charge a certain amount, let's say a thousand rupees per month. Let's say you come in with one lakh rupees, another person comes in with one crore rupees, right? Technically, that guy should be paying a hundred X versus you, right?
00:35:48
Speaker
So we have that built in. So what happens is it's based on the user's margin. Basically, there is a certain subscription fee that's charged. So for each X rupees in margin, which is basically the account balance, Y rupees has to be paid. But usually it averages out to 1000 to 2000 rupees per month. The average account balance will be like
00:36:12
Speaker
maybe 5 to 10 lakhs. So that's how it plays up. But some traders have amazing track records and they can charge whatever they want. So another interesting thing that's going to happen, especially after the mobile app gets launched, is that the mobile app is required because otherwise people don't have access to trading rooms easily right now. They have to go to the web and
00:36:32
Speaker
Again, people have jobs and things like that, so they're not able to easily access the web. But once the mobile app launches, it's going to be much more accessible. One of our bets with trading rooms is that essentially, there's going to be an interesting dynamic that happens where the expert traders will have to decide what to charge. Do they go after scale or do they go after high fees on a per-user basis? Because a lot of these strategies are limited by liquidity. So
00:36:58
Speaker
You see what I'm saying? So even if I have an excellent strategy, I may not be able to scale it across a lot of people. So that's the beautiful thing about the markets though. The markets are just so dynamic like that. Does somebody who is offering his portfolio on trading rules, does it need to be like a semi-registered investment advisor?
00:37:18
Speaker
Yeah. So as of now, the answer is no, based on the current regulations, especially since SEBI has asked for the performances to be withheld from the rooms across all platforms. So as it stands right now, the room owners basically do not have to be paired with any sort of regulatory body, but that can change, right? These rules are always in flux. And that's the beauty of something like trading rooms. It's designed in such a way such that
00:37:47
Speaker
it can quickly adapt and change. So even tomorrow, let's say some crazy rule comes out and fully automated trading is not allowed anymore.
00:37:57
Speaker
anything can happen. If that happens, no problem. Basically, we will send a notification to the user being like, hey, this trade is about to be taken on your brokerage account, click yes to approve, click no to reject. So these things are all very much possible. And let's say I sign up for a trading room. Do I then commit a certain amount of money in my DMAT account to this and that money gets locked in that I cannot then
00:38:22
Speaker
That's that money. How does it happen? Because you would need that. You would need some sort of a lock-in, right? Because if you want to execute strategies, then... Yeah. So there's no lock-in per se, because that money stays with the user, right? The room owner never has access to. So one thing, again, one of the reasons why that requirement of not
00:38:42
Speaker
you don't have to be a semi-registered IA is because there's no access of funds. When you come in and join a room, that's your brokerage account and no one has access to your brokerage account. Whether it's trading rooms or the room owner, only you have access to it. So you can do whatever you want with it. Now, it's not in your best interest to put money in the morning and then take it out at the end of the day, especially if there are open positions because
00:39:08
Speaker
that's going to create chaos for the logic in the room, but anything is possible, right? But as far as the minimum amount is concerned, that's determined by the room owner. So the room owner will say, hey, if you want to join my room, you have to have at least X amount of money in your brokerage account. Otherwise the trade won't get taken, right? It physically cannot get taken because again, everything is done algorithmically. So the program can detect the margin.
00:39:37
Speaker
right? And based on the margin, it knows whether the person has enough money or not. But it's basically each party has access only to their own stuff, right? So the room owner, their secret sauce never gets divulged to anybody. It doesn't get divulged to us. It doesn't get divulged to the room user. And the room user doesn't get access to the secret sauce of the room owner, obviously.
00:40:02
Speaker
But
Funding and Future Growth of Rain Platforms
00:40:03
Speaker
the real reason would see the history of trades, right? Yeah, history of trades doesn't say much, right? It doesn't tell me why the trade's getting taken. The secret sauce is always in the why. It's not in the actual result, right? Unless the person is doing some crazy time determinant, like an arbitrage strategy, right? But that's not going to happen on trading rooms, to be honest. And if you're doing that, obviously,
00:40:27
Speaker
See, if you're seeing the trade history on trading rooms, that means it's going to come to you because you get the contract notes. The exchange contract notes go to you. They don't go to the room owner, right? So you're going to see all the timestamps and all the trades being taken anyways. So if it's actually so secretive, then no one is going to actually set up a room on trading.
00:40:45
Speaker
So for example, if I was running, let's say this technology existed when I moved to India and I was running this NSC BSC ARB, I would never think of listing it on a marketplace like this because that's the secret sauce. The secret sauce is the fact that the strategy is so simple that people can easily recreate it. Yeah. You can figure it out just by seeing what the history of trades.
00:41:12
Speaker
Yeah. So back then when we used to trade, we used to tell people that we were doing the complete opposite because it's just how it is. So we would be like, yeah, we're trying to find the fair value of the price by using the Black-Scholes model and all these fancy terms just to throw them off. But now those models won't work. There's too much competition. Have you raised money for red platforms?
00:41:38
Speaker
We have raised money from friends and family and it's been largely bootstrapped by me actually. And then we raised capital from friends and family. And then we're going to be going for our Series A basically in early to mid-2023. So after the app launches, we're going to be going for a Series A.
00:41:58
Speaker
Yeah. How big is it? Like 8 million series or 40 billion series? So we haven't actually decided that to be completely honest. I think it really depends on the types of conversations that we have. There is a current valuation that the company current kind of enjoys based on whatever investments we've taken on so far.
00:42:19
Speaker
And so we will be very strategic with that. My general philosophy with raising capital is you should raise what you need and a little bit more. Now, others have different philosophies, right? People will say if it's a good time to raise as much as you can, I personally don't buy it to that.
00:42:36
Speaker
My general mantra with all these things is it's better to... You should always have a buffer. You should always be in a situation where you don't need to think about stupid things. But having an endless amount of capital, I think, leads to sometimes rash decision-making without even knowing about it.
00:42:57
Speaker
because it's very easy to justify bad decisions basically when you have almost like an unlearned amount of capital to work with. So we'll make that decision. I think obviously it depends on how those conversations play out. Obviously, the current culture climate right now is interesting to say the least, but I think when it comes to our offering due to the uniqueness of it, we won't face too many challenges.
00:43:23
Speaker
But can you bootstrap it if you so decide to? What do you need capital for? I do need capital. But when it comes to our philosophy, it's actually that it's always better to raise. When you raise, you are able to, first of all, leverage a lot of
00:43:45
Speaker
relationships and you're able to bring a lot of tangible and intangible aspects to the business that wouldn't otherwise exist if you didn't raise capital, especially if you raise from strategic investors who can actually add value, not just the capital. I think in our case, we will definitely raise and I think it should be fun times. Amazing. Okay. And that brings us to the end of this conversation.
00:44:10
Speaker
I want to ask you for a favor now. Did you like listening to the show? I'd love to hear your feedback about it. Do you have your own startup ideas? I'd love to hear them. Do you have questions for any of the guests that you heard about in the show? I'd love to get your questions and pass them on to the guests. Write to me at ad at the podium dot in. That's ad at t h e p o d i u m dot in.