Paul-Adrien Hyppolite (Spiko): "Our edge over banks isn't regulation. It's user experience."

You've just closed a $90 million Series B led by NEA. What do your investors see in Spiko that a traditional asset manager can't offer?

Our products are cash funds: money market funds, or equivalents like the fund we launched with Amundi six months ago, where BNP Paribas acts as the swap counterparty. From a regulatory perspective that one isn't strictly an MMF, but from a user perspective it works exactly like one. Now take a small or mid-sized business. You can try to onboard directly with Amundi, or ask Amundi to build a fund for you, but unless you have a big business, it's going to be extremely difficult. The same goes for the other legal forms we serve: public institutions, research institutes, financial institutions. Below a certain critical size, you can't work directly with asset managers, so you rely on banks, brokers and other distributors. And by default, banks don't give easy access to cash funds. The form of money a bank gives you is a deposit.

"If you want to access an MMF via a bank, the experience is quite bad. We offer a much, much better experience."

And the deposit doesn't solve the treasurer's problem?

It forces a trade-off. Either it's a deposit on a checking account, which is liquid and always available for payments, or it's a term deposit, which earns yield but isn't available for payments. So you put some cash in a term deposit and keep a significant portion liquid, because term deposits come with restrictions. One is the withdrawal notice period: to access that cash, for a payment or an investment, you notify the bank and wait a month. You usually also pay penalties, in the sense that you don't accrue the yield you were supposed to. Accessing money market funds through a bank is hard: the bank has to open a securities account, and you subscribe and redeem through it. That experience is quite bad. What we solved first and foremost when we started Spiko, and we're still largely solving it because the market is big, is access. Tokenisation helps us disintermediate the traditional securities account stack, and we offer a much, much better experience. Today we have close to $3 billion in these funds and serve 10,000 businesses, plus quite a few individuals. We've grown fast, but it's a very small fraction of the addressable market: the whole European SMB market to begin with, then global, which is absolutely huge.

"Crypto is an interesting segment, but it's one of many."

What's your main competitive moat: distribution, accessibility, or a lighter cost stack than vertically integrated players like Franklin Templeton with Benji?

Mostly the product itself, the UX, and the go-to-market, which go hand in hand. I wouldn't say regulation, because quite a few players now have live products in this space that are widely accessible. And not unit economics: Franklin Templeton probably has the advantage of being vertically integrated. We pay a third-party asset manager and a third-party depositary bank. We already do quite a few things in the value chain, as transfer agent and distributor, but they're also the asset manager, so everything sits under one roof, which is probably optimal economically. Where we've won so far is the product, which is probably better in terms of onboarding and features, and the go-to-market: the ability to reach a new client category through new distribution channels. Legacy asset managers, and that's not only true for Franklin, have massive legacy distribution channels, but it's very hard to offer tokenised products through them, and the new channels they're trying to build are mostly crypto-centric. We go way beyond crypto. That's not a knock on crypto at all; it's an interesting segment, but from our perspective it's one of many.

What happens if your distribution partners launch their own products, or if banks win deposits back as rates rise?

Those are two questions. Our distributors are usually not in asset management: they're payment providers, brokers, wealth management platforms. Building a transfer agent stack and launching cash funds isn't their core business, so they're very happy to partner with a specialist that does it well. That's our only mission. We don't do payments, for instance. We could, but we don't, because we want to be 100% focused on creating cash funds: building the products, finding the right partners, and building everything around them, like payment rails, APIs, instant withdrawals. All of that is very complex, and I don't think partners operating in other segments want to take it on. So I'm not concerned.

On banks, we're still a long way from them passing the risk-free rate on to deposits. It isn't even the case in the US, where the money market fund industry is absolutely massive and these products are far more mainstream. The US is probably decades ahead of Europe in the maturity of its cash market, and even there, most liquid deposits don't bear yield, or yield way, way below the risk-free rate. Maybe one day all deposits will be yield-bearing. That's our vision, at the end of the day. But it won't happen overnight.

"The more fintechs and platforms offer yield, the better for us."

More fintechs, and some banks, now pay yield themselves, not necessarily through you. Doesn't that squeeze your space?

It's clearly taking off, but it helps us. As people get used to yield, they expect all their cash to be yield-bearing. And if you have the best product, the best yield, the best liquidity, the best UX, it's very beneficial to have more people and more businesses educated to the idea that their cash should always earn something. This isn't a winner-take-all market. It needs education, and the more fintechs and platforms offer yield, the better for us: either they do it through us, or they keep teaching the market that this is a basic thing, a commodity. Once you know that, you look for the best platform, and if you've built the best platform, that's good for you. So I'm not worried. I think it's a great thing that there's more competition and more awareness that yield should be on by default.

So the differentiation isn't the yield itself, since money market fund yields are fairly similar, but the experience around the product?

That's fair. But on yield too, if you look at our products today, we offer some of the very best yields on the market for overnight liquid cash. If you want to tie up your cash for several months, it's a different story, because the yield curve is now quite upward sloping. For overnight liquid cash, being at the top of the market across all currencies matters a lot to us.

"There is zero bad surprise in terms of fees you are not aware of."

How are your fees structured, and how are they split with partners like Amundi?

We only charge management fees, nothing else, and that's quite important. Many players in this industry charge subscription fees, a sort of SaaS model where you pay to access the platform and get more or less yield depending on how much you pay. We don't do that and don't plan to. We like having a platform that is free and transparent. The management fees are always netted out of the yields we show publicly, so there is zero bad surprise in terms of being charged fees you're not aware of. Not every company or fintech is built like that, and we plan to keep it this way. Fees are pretty much the same across all products, for the sake of simplicity. We don't communicate on the split, but it goes between us, as transfer agent and distributor, and the third parties we use: Amundi, for instance, and Crédit Agricole, whose CACEIS acts as depositary and custodian. Part of it also pays the auditor, PwC in our case. Regulated cash funds are audited four times a year, far more than the single annual audit of a typical business.

Is there an AUM level at which Spiko breaks even?

That's a tough one, because it depends a lot on how our marketing spend evolves and how big the sales and go-to-market team grows. At this point in time, the honest answer is: I don't know.

"We are not trying to build a small asset manager that is profitable. We could do that."

Can you give a range? We're less interested in Spiko's P&L than in the scale at which this kind of business becomes defensible on its own.

From a unit economics perspective, we have a very sound business. But profitability isn't top of mind for me until we reach tens of billions in AUM, because this is a very big market. I don't consider that we'll have made a real impact on this industry until we're at tens of billions at a minimum, ideally hundreds of billions, and potentially thousands one day. That's what we're working towards, and it's very much shared by our investors, who are VCs and growth investors. Until we get there, profitability isn't the relevant question. We are not trying to build a small asset manager that is profitable. We could do that.

Where do you want Spiko to stand in three to five years: a better cash-management platform, or a new asset manager?

Today we're 100% focused on the treasury cash market, first because it's a huge market, and second because there are new types of users to reach. We started with very small businesses, and today we already serve some of the largest startups in the world and some pretty big SMEs. Just by expanding geographically and across business sizes, we can grow a lot. On top of that, there are many new products to launch. Today we only have liquid products, so we address only the very beginning of the market: cash that needs to stay liquid at all times and be essentially risk-free, because our products are extremely low risk. Whether we become an asset manager isn't a big question for me today. We partner with asset managers, and it works well. We want to stay focused on what we do well, which is distribution and transfer agency.

"Our stack is very robust because it needs to be."

Is the technology stack what sets you apart from the competition?

What we do better is less about the technical stack and more about distribution. We have more clients and more AUM, so our stack is far more tested and stressed, in a positive sense, than our competitors'. Our smart contracts are all open source and public, and we operate across several blockchain networks. The difference is that we process tens, hundreds of subscriptions and redemptions a day, in big volumes that keep growing as we speak. Of course, we have a robust stack, we improve it every day, and we have excellent engineers; it's probably hard to build that team and stack if you're not a tech company. But what really differentiates us is more clients and a much better go-to-market. As a result, our stack is very robust because it needs to be. I'd look at the question the other way around.

How do you fund instant withdrawals up to €500,000, and what happens if redemptions spike?

We do it ourselves and fund it ourselves. It's a pre-funding of the redemption of fund shares, which settles a few minutes, hours, or days later depending on the time of day and the day of the week. So it's extremely short-term credit, and essentially risk-free because of the nature of the fund. We could scale it beyond our own balance sheet by using third-party balance sheets; that's a possibility, but we don't do it today. As for a spike, we've sized the balance sheet so that it doesn't run dry. That's why the cap is €500,000 and not €1 million, €2 million or more; we've done the calculations internally. And if it ever did run dry, it's not the end of the world. The redemption would simply happen at the daily cut-off. Not great UX for users expecting it to be instant, but their cash is never at risk.

"Even T-bills don't really trade 24/7 today."

What stands between you and true 24/7 liquidity on fund shares?

In the fund space, it's quite simple in principle: with multiple cut-offs, one every hour or every minute, you could provide unlimited liquidity on the primary market. It's very hard to do truly 24/7, though. First, it's an accounting challenge: you need to value the fund shares very often during the day. Second, it's a market and liquidity challenge, because the underlying markets aren't 24/7. Even T-bills don't really trade 24/7 today. The good news is that markets are moving in that direction so that it will get easier. But today no one can do continuous creation and destruction of fund shares without a pre-funding mechanism like ours. For us, 24/7 interest accrual and 24/7 liquidity are a roadmap. We've already done interesting things in that direction, and I think we're credibly one of the most advanced players on that journey. Still, it involves accounting, market, and operational challenges that are very difficult. We will get there.

What does your European expansion look like?

Western Europe first, including the UK, then EU countries, then the Nordics and Eastern Europe. We want to go pan-European as fast as we can, but Western Europe comes first because it's where the largest markets are: money supply and bank deposits are still very concentrated there. We do it by building local go-to-market teams, which we've started and will keep pushing in the coming months. It's working quite well, and I'm very bullish on the European expansion. At some point, we'll try to go beyond Europe too, possibly the US, possibly Asia. We don't know yet; we're considering several options.