The co-founder and ceo of the best-known fintech investment platform speaks. From the startup’s inception to raising capital, from engaging more and more retail investors in the markets to the risks and opportunities of blockchain and AI for financial markets
Article published in BeBeez Magazine No. 24, Sept. 28, 2024
By Stefania Peveraro
“Knowing to take risks differentiates a fintech startup from a traditional bank. The biggest risk you can take as an entrepreneur is not taking any risk.” This was made clear to BeBeez Magazine by Yoni Assia, who in 2007 in Israel, together with his brother Ronen, founded eToro, the first online social trading platform, a social network of traders who interact, discuss ideas and share their trading decisions and strategies, which they then put into practice directly through the platform.
“Our goal has always been to help people become successful investors by providing them with simple tools to access the market and manage risk,” Yoni Assia further said. It’s an idea that immediately appealed to venture capital investors, who have funded it through multiple rounds since its inception, with the latest going back to March 2023, when the scaleup raised $250 million (see the press release here). Participating in that latest round were ION Group, a global technology provider to the financial sector, founded more than 20 years ago by Italian entrepreneur Andrea Pignataro, and a leader in fintech and data management; along with SoftBank Vision Fund 2, Velvet Sea Ventures, and several existing investors. The financing stemmed from an investment agreement preparatory to the business combination deal with the U.S.-based Spac FinTech Acquisition Corp. V that had been announced two years earlier with a goal of listing on Nasdaq, but which the two parties later in July 2022 decided not to finalize (see the press release here). On the strength of the capital raised (by Crunchbase‘s calculations nearly $700 million), eToro has also grown through acquisitions over the years. The latest one was announced just in the past few days and concerns the Australian fintech investment platform Spaceship, which boasts more than 200k customers and more than A$1.5 billion in funds under management, acquired for A$80 million (see the press release here).
BeBeez caught up with Yoni Assia for an exclusive interview last Sept. 24 at Palazzo Mezzanotte, headquarters of Borsa Italiana-Euronext in Milan, to talk about his experience as an entrepreneur, how technology has changed the approach to investing for retail investors, how Italians are changing their investment habits, how fintech trading platforms can help improve the financial culture of retail investors, and where technology will take us, with blockchain and AI at the forefront, which may also have its risks. Hence the need for close collaboration with regulators.
Question. How did it all start?
Answer. The first time I made a trade I was like 13 years old and I did it on behalf of my father. I remember when I saw that after my trade the price had changed, I thought, wow, I’m here and I can have an impact on the whole market! I have always liked capital markets and technology. I founded eToro 17 years ago with my older brother, and when we looked at the market we saw that there was a big gap in financial education and practicality of using platforms to access capital markets. What we wanted to do was simplify access to the markets and allow more people to fall in love with the markets. I was doing my master’s degree in computer sciences and my brother on the other hand was studying art and design, and we realized the fact that design (of the trading platform, editor’s note) is the key to enabling people to access the capital markets, and since then we have always used this combination of technology and design to bring more and more retail investors to access the market, learn and also connect with each other.
Q. Things may not have been easy in the beginning. What obstacles did you have to overcome and how did you do it?
A. Like all startups of course we had to face several challanges. We founded the company in 2007 and then 2008 came along. That year we had raised capital from investors and the money was deposited with various banks and investors would call me and ask me which banks I had deposited my money in, because I had to realize that some of those banks the next day might not open. And then as a fintech entrepreneur on the one hand I had raised capital but on the other hand I was also holding customers’ money. I mean in our history we’ve gone through a series of ups and downs and anyway from the first round we raised in 2007 which was $1.7 million based on a valuation of $5 million we got to the last one of $250 million with a valuation of $3.5 billion. If we’ve made it, it’s because we’ve always been clear about our goal, which is to help people become successful investors, and we’ve done it on our own skin. I build new tools to make available to our clients because I build them for me and I use them to invest. On the other hand precisely because investing is our business we are very good at managing our company’s finances as well, whereas many startups don’t. We have invested a lot of money to grow, but we always know how much money we are spending and make sure we always have enough for the next 18 months. Opening a new market or developing a new product costs money. But we invest responsibly.
Q. Speaking of investing, you went to dinner with Warren Buffet. What did you learn from that dinner?
A. It was an extraordinary experience. I had gone prepared, I had read his books and various of his comments on the markets. Hearing him speak live, I was fascinated by the consistency of what he was saying. He made it clear that you can make money in the financial markets and that what you need is to understand the business of the companies you buy and be able to read financial statements properly. And having understood this led me to appreciate even more the value of our network of popular investors, that is, successful investors with a long track record, whom I can therefore trust because I imagine they can bring home the same results in the coming years. With Mr. Buffet, I talked about stocks. I tried to convince him to invest in bitcoin too, but it’s just not happening. He has the same aversion he has to gold and commodities, because they don’t generate value. He is convinced that you should invest money in companies, because companies produce, so they generate value for their customers, and they provide jobs, so they generate value for their employees. If you fill a stadium with gold on one side today and buy Apple and Amazon stocks on the other, ten years from now you will still have the same stadium full of gold while companies like Apple and Amazon will have grown and built products and produced returns and wealth for their shareholders and employees. Effectively, the real value is in the stock market, regardless of currency fluctuations. That is why people, despite bitcoins, will always buy McDonalds’ or Coca Cola stocks.
Q. Let’s talk about Italian retail investors. Italian financial markets Supervisory Authority, Consob, in its latest report on household financial habits reported that 40 percent of retail investors surveyed say they are interested in online investments through fintech platforms, which means a 15 percent increase over the results of a similar survey conducted for the previous report. On the other hand, however, only 1 in 5 respondents said they actually make online investments. How do you read these numbers? How does Italy differ with the rest of Europe or the world?
A. I would start by saying that until now Italian savers like all Europeans have always been less exposed to financial investments than American savers. But now especially young people are beginning to be convinced that it is better to invest their money rather than keep it sitting idle in a bank account. So I think the key to increasing their appetite to invest is to make it easy. In the United States if you ask 10 people if you can make money in the markets they will all say yes. In Europe only 5 will do it, and the rest will start shielding themselves, saying it is risky. In my opinion, platforms with eToro can really do a lot on this front and help people access the markets and also understand them at the same time. Even just by teaching people to emulate successful investors as well as you can do on eToro. Even by investing small amounts you can copy the portfolio of experienced investors, our popular investors, and thanks to our social network you can compare yourself and interact with other investors. On eToro we have 3.2 million accounts (38 million instead are registered users, editor’s note) and 3,200 popular investors. And then we have developed the eToro Academy, which offers thousands of webinars to deepen your knowledge of the financial markets. In short, in my opinion, the way to bring people closer to the markets is this: we need to make investing easy for them.
Q. Let’s talk about banks. What relationship does fintech eToro have with traditional banks? Do you work with them? Do you feel you are competitors?
A. In my opinion many banks’ platforms have a horrible user experience. Banks can’t tell the difference between a feature and the user experience for that feature. On the other hand, it’s hard for them to work with us on the front end because we cannibalize their business: banks prefer people to deposit money into accounts and take out loans. In contrast, we do a lot of work with banks behind the scenes, because our customers’ $12 billion or so of their money is deposited with the world’s largest banks, with which we are therefore connected. Our strength has always been technology. I started in my parents’ garage with a big server and an Internet connection. The cloud did not exist yet and we worked with downloads. Then the Web 2.0 came and social networking was born then the blockchain and AI came. If in 2015 we asked ourselves what we should do to transform ourselves into a mobile first company, then we asked ourselves what to do to become a crypto native company and now what needs to be done to be an AI first company. It’s this approach that differentiates us from banks, because our technology is inherent in everything we do and that means taking big risks, but it’s really being able to take risks that differentiates a fintech startup from a traditional bank. The biggest risk you can take as an entrepreneur is not taking any risk.
Q. Speaking of Blockchain and AI, how can fintech players and regulators work together to expand access in a safe and responsible way?
A. We work a lot with regulators to educate the market about the ‘importance of the technology and how that technology can help consumers access markets in the best way. Regulators and consumers have aligned interests, and we build tools to enable customers to generate returns, but also to manage risk. As for the future, regulators will have a lot of work to do because I think it will be inevitable that other assets will also be traded around the clock in all parts of the world as is already happening now with cryptocurrencies thanks to blockchain. How to regulate this will have to be figured out. So far, regulators have mostly focused on anti-money laundering issues. AI can help people better understand how to invest and also better allocate their time. I myself have found that thanks to AI I can save a lot of time and therefore create asset allocation and stock picking tools very quickly. And not only that. Thanks to the amount of data on our clients’ trading, we can build models of the behavior of European retail investors and how they may impact the markets, and based on these models with artificial intelligence we are building smart long-short portfolios that can generate alpha (returns that are higher than the reference market, editor’s note) and will be ready by the fourth quarter of the year. These are investment strategies that until now were not within the reach of retail investors, but only of large hedge funds. Today, however, thanks to technology, platforms like eToro can offer them to their retail clients.
Q. Where do you invest?
A. Everyone can see where I invest by going to my eToro page. At first glance my portfolio may look very messy, because I copy the moves of a hundred popular investors, invest in 20 smart portfolios, buy cryptocurrencies and tech stocks. But I’m a big believer in diversification, I’m banking on long-term industry changes, which I actually believe technology and crypto are, and on companies whose business I understand. My one big concern is global economic trends. And that’s also why I like to compare myself with other investors in the market who adopt a different investment strategy than I do.
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