Merger pros and cons: How the two types of companies can benefit from each other
Interview with Catherine Clay,
SVP, Global Head of Information Solutions at Cboe Global Markets
When you’re a startup, your resources are limited. In Fintech, it’s an advantage to stay hyper-focused on what the company does best and add value to what it brings. Having too broad a scope can end your business if you spread yourself too thin.
Large organizations, in turn, struggle to keep up with the pace of the changes. And a lot of times that reflects in talent acquisition. Let’s say a company wants to introduce machine learning into its product suite: it needs to go out and find data scientists and other highly recruited talent to make that initiative happen. At that moment, this company comes into a conundrum: Should we build it, or should we buy it?
Why do they buy?
Large companies invest more in some areas and less in others. When one area is left behind for a long time, it can be easier and cheaper to buy a startup that’s up and running than to invest in reinventing the wheel.
“When a large organization looks at a Fintech company, one of the lenses they’re looking at a company through is what impact could this company have both internally and externally. Are they doing something really well? [The focus] may be narrow, but their core should have broader implications and use cases.”
If the company decides to buy a solution, it should be easily integrable and have the potential to bring more value as part of a bigger organization than in isolation. Also, it may be able to replace external vendors and provide more meaningful results for the company. The biggest advantage of a startup versus an external vendor is speed.
“The startup organization can probably move faster than a larger organization. And that’s always going to be an advantage for the upstart. That nimble ability leads, oftentimes, to a decision by the larger acquiring organization to buy versus build.”
As technology and its applications change and the velocity of these changes increases, it’s very difficult to keep that cadence up without introducing some nimble partners or acquisitions along the way.
There’s another reason companies may choose to buy. Sometimes, it’s easier to get talent by acquiring it than it is to compete with all of the other companies that are trying to get that same talent.
“It’s really interesting to look across the landscape and see the different Fintech companies out there and what they’re doing. And believe me, everybody’s looking to see who’s out there in these spaces. I think the appetite for a partnering, or acquiring these impactful Fintech companies, is very high right now.”
Why do startups get acquired?
Catherine Clay is the founder of a trading startup called LiveVol, which was a very specialized company focused on US-based derivatives, data, and analytics. Four years ago, her startup was acquired by Cboe. Among the reasons for that merger were high demands on the customers’ side.
“We couldn’t keep up with client demand to the extent we would want to because the clients were asking so much of us in terms of our technical deliveries and our products.”
Due to the specifics of the business, the demands of LiveVol’s clients with the API delivery were huge. Catherine spent a lot of time doing R&D on which technology stack was going to be able to deliver the data with the latency that her clients were comfortable with. Talking about the capital markets and the derivatives markets in particular, a ton of data has to be examined. There are problems that can hardly be solved without any partnerships.
However, if a Fintech company isn’t alone in this battle, both parties can benefit from cooperation through keeping their focus sharp.
“We’ve made a huge investment in our infrastructure and our technology to be able to deliver the data on the API with much greater speed than we ever have before. It is a huge focus of ours.”
The bottom line
Any Fintech company should know what value it brings to the customers. And if it wants to be acquired, it may need to understand what value it can bring to a larger organization. In the Fintech world especially, the speed of delivery and adaptation to technology changes matters. So, partnerships with larger organizations can be an answer to growing customer demands.
Catherine Clay has been in the finance industry for 25 years. She began as a derivatives trader in 1994, trading equity and index options. Following her 12-year trading career, she founded a FinTech company called LiveVol, which Cboe acquired in August 2015. LiveVol started as an equity and index options technology and services provider and expanded into other asset classes. In her current role at Cboe, Catherine runs a group called Information Solutions, which includes derived data and analytics, index calculation services and execution platforms.
Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech engineering company. Vasyl is also the author of WealthTech Club, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.