A Look at the Personal Finance Market
The personal finance market is one of the fastest growing segments of the financial markets
Champions of this growth are apps like Robinhood and the many apps offering robo-advisors. Societal shifts, such as growing desire among retail to put their money to work, are only a part of the progress personal finance has made across the world. Advancements in fintech have made management of personal finance exciting, with additions of safety.
The average household has fewer funds and hence is more risk-averse.
Stock market participation has moved from hiring a broker to a pay-per-trade ebroker to becoming free. With each step, more retail participants
have become involved. Hiring a broker was naturally beyond the capacity of the mass households. Paying $20 per trade entry and exit, while more affordable than hiring a broker, was a high-risk decision for small portfolios, and the average retail portfolio is small.
But personal finance is just getting started. Equity markets give retail exposure to the success of some of the greatest companies in the world, after they have already grown by 100x or even 1,000x from their venture rounds. Yet retail participation in venture capital is insignificant.
The global VC market has hit nearly $300B. Personal finance is on the way to touch $1.1T.
Annual retail participation in VC is around $2B, meaning retail participation barely scratches 1% of the global VC market, and venture participation is just 0.2% of the personal-finance market. Yet the venture market is one of the important segments for wealth creation.
Retail’s aversion to venture markets, though, is understandable. The average VC fund participates in a venture knowing that the investment carries a potential 100% loss. Such incidents, while frequent in venture participation, are extremely uncommon in the equity markets. The small portfolios of most households are not capable of weathering a 100% loss on an investment. The personal finance market is one of the fastest-growing segments of the financial market.
Venture Capital is the next frontier for personal finance, but the venture market’s present stage is somewhere between the broker and e-broker state of stock investments. The major portion of venture investment is done through dedicated middlemen, and while the market does have online facilitation, it’s still too risky for retail.
This demands a new approach to venture participation, one that makes it safer, without taking away the excitement.