Community-Based Finance

As our world continues to shift into a digital ecosystem, business models with community as a central theme are thriving. Community-based business models are often fostered on social media or within other digital meeting places. Those passionate about gaming, social media, fintech, and other interest areas, can find solace in businesses that works to meet those shared desires. Companies like Patreon, Peloton, and Reddit have largely succeeded by enabling their users the opportunity to join like-minded individuals around their various products and missions. From our viewpoint, there is a massive opportunity for community-based companies across various industries, verticals, and products.

Within personal financial management and planning, young consumers are searching for solutions where they can connect and share industry knowledge, expertise, and strategies to learn and explore what others are doing.

What’s Trending

Jump Capital has been an active fintech investor since inception. For the past decade, we have invested across personal wealth management, retail investing, and trading platforms and are thrilled to have worked closely with founders across our portfolio like Acretrader, M1 Finance, Tradingview, and Personal Capital. Through our experience, we’ve seen the evolution of consumer behavior across the broader financial world as it relates to personal financial management and investing, driven by an increasingly active, community-oriented generation of young investors.

Traditional banking institutions and wealth managers are gradually being usurped by fintechs providing more democratized methods of finance. As we shift away from traditional models, we see more companies applying a digital approach towards wealth management. For example, M1 Finance enabled the “self-directed investor” to build portfolios and replicate strategies, while Tradingview has continued to grow users’ ability to share ideas, charts, and perspectives across its network. Fintech businesses are not only tapping into the needs of the digital natives but are actively providing a foundation of options for people looking to discover, learn, share, and further explore how they can manage their own money.

This behavior evolution has occurred due to a myriad of factors, all related to the increased accessibility of digital financial tools and comfort in engaging in open conversations about finance. An important factor to note is the rise of the retail investor, which greatly accelerated during the pandemic as interest in finance and investing has skyrocketed. To put this into perspective, in 2020:

• Finance app downloads were up 20%
• Hours spent on finance apps were up 90%
• Hours spent on trading and investing apps were up 135%
• The number of finance apps among the top 100 non-gaming apps by downloads in the U.S. almost doubled between 2019 and 2021¹

Younger generations have shown an increased propensity to invest², but not with the support of traditional sources of financial news and financial advisors. Instead, they’ve shown a preference for platforms that allow for flexibility and transparency. These young investors tend to utilize different tools and platforms to reach specific goals, leading to a fragmented financial portfolio. With the rise of DIY investing, people are more comfortable with the idea of discussing their finances, to the point of sharing investment tips and strategies with large social networks³. Beyond just sharing ideas, people are willing to showcase their portfolio and enable others to replicate or mimic—a level of transparency in personal finance that was once taboo. Once a space dominated by high-profile investors and advisors as the gatekeepers, the financial world is becoming more accessible as the everyday retail investor takes center stage.

As younger generations of investors rebel against traditional financial institutions we have seen the rise of “finfluencers”, social media influencers that utilize platforms like TikTok and YouTube to make financial advice digestible for younger audiences⁴. These self-appointed financial gurus create quality, informative content to be validated and acted upon by communities of DIY investors. The success of “finfluencers” stems from their reliability and the accessibility of their content, a far cry from spending thousands of dollars for traditional financial advice. Creators, whether they be “finfluencers”, brand ambassadors, or typical social media influencers, generate a wealth of content for the everyday viewer, consumer, or investor. The thirst to discover combined with instant access across social and content platforms has enabled gaining investing perspective from various sources while also creating trusted relationships with unexpected sources of investing advice.

What We Are Hunting

This continued desire for people to discover new investment approaches, the creation of digital educational environments, and the ability to leverage other people’s work and research to inform financial decisions all lead to a new era of investing. We have seen this idea continue to grow and take hold and, coming fresh off our recent fundraise, we are ready to double down in our search for unique platforms across the financial sector that are focused on community-building and user collaboration.

From our view, success will stem from the ability to deliver informative, quality content, the flexibility to adapt to community needs and trends, and the added layer of individual control over one’s finances.

With all of that in mind, there are several areas of focus we believe underpin this trend and will continue to be exciting areas of investment:

• Content and media platforms dedicated to trading and investing in which entertainment drives engagement. These platforms cultivate a community of like-minded investors discussing exciting topics, introducing varying perspectives, and educating. We see this taking hold with companies like Trading.tv, tastytrade (recently acquired), and even through the infusion of financial perspectives on TikTok. A key distinction will be enabling content on existing platforms vs purpose-built platforms for investing.
• A centralized location for information on markets, trades, and other investment-related news, allowing for the ability to invest directly from the place you consume content. During the pandemic, with the rise of the retail investor, people were perusing Reddit for information on GameStop to then shift over to trade on Robinhood. Companies like Public, Webull, Finary, Gatsby, and Zingeroo are in the process of building centralized hubs of financial / market information that enable users to invest directly from these platforms when they identify an asset they want to back.
• Platforms that enable users to learn from others about where to invest, making investing a more social experience alongside your friends and favorite influencers. People are eager to learn from their peers and trusted resources. People want the opportunity to follow experts that have deeper knowledge about a particular category so that they can, in turn, replicate their strategies or engage in discussions with friends or peers. Platforms like Commonstock, Stocktwits, eToro, Front, PersonaFi, and Iris Finance provide this socialized investing experience and maintain transparency when it comes to holdings of influencers and their successful investments as well as ESG attributes of specific assets. These platforms help users make more informed investing decisions.
• Platforms and tools that make it easier for families (both immediate and extended) to invest in the financial future of their kids. While companies like Earlybird, Goalsetter, and UNest all tackle different problems, they enable families to gift an investment for a child’s future, help educate children around financial literacy, and allow for savings towards certain life events, including tax advantaged investment accounts for their college education. Truly building on the premise of “it takes a village” with community-based support and investing.

We believe there are a variety of exciting community-based businesses that will define the future of finance and are excited to work with founders ushering in a new way of investing.

Sources

1. https://www.bloomberg.com/news/articles/2021-09-17/social-media-influencers-income-advertising-wall-street-products?sref=3Ac2yX40
2. https://www.bloomberg.com/news/articles/2020-08-19/gen-z-and-millennials-really-are-trading-more-in-the-covid-era?sref=3Ac2yX40
3. https://www.forbes.com/sites/ronshevlin/2021/08/23/59-of-gen-z-investors-are-guilty-of-twi-trading-while-intoxicated/?sh=4411b57b6b13
4. https://www.wsj.com/articles/the-social-media-stars-who-move-markets-11630056601