Toronto-based FinTech software startup Composer has revealed $6.73 million CAD ($5.35 million USD) in previously unannounced seed financing to fuel the launch of its automated trading platform.
Backed by a group of investors that includes San Francisco’s First Round Capital and Toronto’s Golden Ventures, Composer aims to bring institutional investment strategies to retail investors.
The rollout of the open beta of Composer’s offering comes amid a spike in the popularity of retail investing during COVID-19, fuelled by the growth of investment groups on social media platforms like Reddit.
“These online communities were just starting to take off, and COVID was just like pouring gas on the fire.”
-Benjamin Rollert, Composer
In an exclusive interview with BetaKit, Composer’s co-founder and CEO Benjamin Rollert claimed this rise in retail investment activity began before the pandemic hit.
“These online communities were just starting to take off, and COVID was just like pouring gas on the fire, and then you could just see them exploding,” he said. “You look at things like WallStreetBets, you look at what happened on Reddit, and it’s just wild.”
Composer allows individual, non-professional investors (retail investors) to design and adopt sophisticated, hedge fund-like investment strategies. It was founded in 2020 by Rollert, CTO Ronny Li, and COO Ananda Aisola, alumni of Montréal-based workspace startup Breather and Toronto-based social food ordering app Ritual, respectively.
The startup’s platform permits users to create their own strategies using its no-code visual editor, or implement ready-made approaches. Composer’s software also enables them to backtest the performance of various strategies against historical data, and, once selected, automatically executes trades on behalf of investors.
To start, Composer is focusing its offering on “edge-seeking” retail investors who spend a lot of time reading investment newsletters and browsing Reddit forums, who are “willing to put in extra effort to try to find some sort of edge.” Rollert described this group as sophisticated, but “outside of the truly elite circles.” Longer-term, the startup intends to expand its reach to more self-directed, systematic retail investors.
In spring 2020, Composer secured $1.39 million CAD ($1.1 million USD) in equity pre-seed financing led by Golden Ventures, and supported by Alumni Ventures Group (AVG) Basecamp, a group of undisclosed angel investors, and Packy McCormick’s Not Boring Capital, the latter a fellow Breather alumni.
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Composer launched its closed beta in March 2021, and, in May, closed a $5.35 million CAD ($4.25 million USD) all-equity seed round led by First Round Capital and supported by fellow new investor Draft Ventures, with follow-on support from Golden Ventures, Not Boring Capital, and AVG Basecamp.
“I’ve been interested in trading and investing since I was a teenager, but I’ve never worked in institutional finance,” said Rollert. “At the same time, I’d also been exposed to how wealthier people invested, how institutions invested …. and when I looked around, I was just shocked at how mediocre or sub-mediocre the retail investing options I had were.”
According to Rollert, who previously served as Breather’s vice president (VP) of product, most existing options had poor user interfaces and limited capabilities. As a result, he started working on Composer in 2019 as a “fun project,” coding his own trading strategies, seeking to replicate the investment strategies of hedge funds, which he described as not complicated, but difficult to build.
“As I started writing about what I was doing and sharing it with friends and family, a shockingly large percentage of them were like, ‘I’m super interested in this … I want to invest in this, I want access to this,” said Rollert.
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Buoyed by increased savings and limited spending options during pandemic-related closures, many prospective investors have turned their attention to public markets during COVID-19. According to a 2021 study conducted by Texas investment brokerage Charles Schwab, 15 percent of current United States stock market investors surveyed said they began investing in 2020.
Jonathan Craig, head of investor services at Charles Schwab, said the firm has seen “tremendous growth and engagement among individual investors over the past year,” attributing this rise to lower trading costs, new products and services designed to increase trading ease and accessibility, and the opportunities posed by market volatility.
Amid this environment, the popularity of retail trading platforms like Toronto-based Wealthsimple Trade and California’s Robinhood have surged, fuelled by social media platforms like Reddit and meme stocks like GameStop and AMC.
“Things like r/wallstreetbets have shown that we’re in a new era of engagement in the public markets,” First Round Capital Partner Meka Asonye told BetaKit. “People increasingly want to customize and control their portfolios, but in an automated and sophisticated way—and Composer is building a powerful tool to help them succeed.”
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According to Rollert, “the timing is critical.” In early 2020, when the Composer team first began talking to potential investors, it was not clear that retail investing was going to take off. “The thought was that retail investing wasn’t a big enough market, believe it or not, and that shows you how fast things can change because literally no one says that now,” the CEO said.
These trends, which are transforming public markets, have also led to an increase in the amount of venture funding and the number of competitors concentrated on this space.
Rollert acknowledged competition from incumbents like Connecticut’s Interactive Brokers and upstarts like Chicago-based M1 Finance, but claimed “there’s nothing as flexible and as powerful” as Composer available in the market. “The reason why is this is really hard, because usually you have to trade one off for the other.”
“Today, hedge fund-like strategies remain the territory of the ultra sophisticated and one percent.”
-Meka Asonye, First Round
The CEO views Composer’s focus on user experience (UX) as a key differentiator.
“That’s just not common still in finance,” he said, crediting companies like Robinhood and Coinbase as the “outliers” in this respect. “Generally speaking, especially when it comes to more sophisticated [platforms] … there’s just no focus on UX, and especially [no] focus on design— the aesthetics are usually terrible.”
“Today, hedge fund-like strategies remain the territory of the ultra sophisticated and one percent,” said Asonye. The former Stripe head of sales and customer success added that he was drawn to Composer’s “mission to democratize access to the tools that help people unlock superior returns, so they’re not just confined to the exclusive club of high net worth individuals.”
After seeing some positive results from its private beta, Composer is rolling out its platform in open beta as of November 15.
For live trading, Composer’s initial focus is on the United States with plans to roll out the capacity in other geographies over time.
Initially, Composer doesn’t plan to monetize its platform: Rollert said the startup’s main focus is on providing a quality UX. However, in the future, the CEO said he sees “a very, very lucrative [revenue] opportunity” in building a two-sided marketplace that allows creators to build their own investment strategies and then sell them to other investors.
The CEO said the startup also has other potential monetization options, like freemium features and a software-as-a-service approach. “There’s a lot of ways to monetize, and our group has a pretty reasonably high willingness to pay,” he said.
Feature image courtesy of Composer