Savneet Singh, President & Co-Founder of Gold Bullion International, speaks with GrowthCap CEO, RJ Lumba. Savneet shares his insights on growing a retail investment platform and which areas of the financial industry he sees as still ripe for disruption.

RJ: Savneet, thanks again for taking the time, always good to chat with you.  So I thought we could kick off the conversation with hearing about your background?

Savneet: Sure, my background starts in traditional finance.  I began my career as an investment banker at Morgan Stanley primarily in mergers and acquisitions across different sectors although most of the deals I worked on were in the technology, media, telecom and infrastructure space.  After Morgan Stanley, I worked at a large hedge fund focused on long/short equities essentially trying to find deep undervalued companies or high overpriced companies, again within mostly the technology sector.  Having been a very, very deep disciple of Warren Buffett we also ended up going outside of technology to find other interesting opportunities that were undervalued.  Around that time, the fund I worked at ended up owning a large portion of physical precious metals, predominantly gold bullion, and I began studying the asset class with great interest. I didn’t really understand it and tried to go buy some, and curiously found it wasn’t really available.

Then I got connected to a couple of other individuals, both with very successful finance careers, and they had the same exact problem — they couldn’t find a way to buy physical gold. So the three of us went out, me starting the company and them putting in the initial financing, to create a platform or exchange for investors to buy, trade and store physical precious metals.  The platform would enable investors to type in a ticker and buy a bar of gold, store it in a vault location of their choice, fully insured, fully audited and also be able to  trade it just like a stock or a bond.  That’s where we are today.  I run the business, it’s called GBI, and I am also an active investor in a number of technology and growth equity type businesses.

RJ: So when you were thinking about this idea, it came out of a personal experience wanting to own physical gold.  But was the timing also relevant? Did the state of the macro economy and a shift towards people wanting their financial assets to be more secure play a role?

Savneet: Yes, absolutely.  I think the crash of 2008 and the autumn of 2009 brought up the idea of actually owning hard assets and knowing what you’re owning.  Before that people just assumed that a derivative was really ownership, and in reality it wasn’t.  So the timing was absolutely relevant in that I think anyone who went through that experience, that entire generation, will always think about counterparty risk.  When you think in that manner or have been shaken a bit, your preference then is always to buy the hard asset.  We played on that, and our thesis has always been that if you can make access to the hard asset as easy as buying the synthetic instrument, and you can make it as cost effective, why wouldn’t you buy the hard asset?  And that’s what we capitalized on.

RJ: And how have volumes played out since you launched, to give us some perspective on the uptake?

Savneet: We’ve done well over a billion dollars in transactions since we’ve started so the uptake has been really strong.  We don’t disclose the full numbers, but very sizable figures, and a lot of our distribution comes from wealth management firms.  I only say that to give you some context of the experience.  We built our technology but then it took us a good 15 months to sign our first client because these wealth management firms had very, very long sale cycles, and while the financial crisis certainly played to the thesis of our company, they also made it much harder to get into these banks and institutions that control all the assets because they were all very risk averse and extremely scared of working with a young company.  So once we were able to crack through those challenges we saw quite a bit of volume come through and the thesis play out nicely.

RJ: Is the target investor then categorically high net worth individuals or are you also seeing a lot of participation from the lower end of the market?

Savneet: So I’d say it’s all over the place.  In our wealth management business, which is the largest side of our business, it is definitely the higher net worth type client.  The average transactions are quite high, but we’re not talking billionaires, we’re talking orders anywhere from $25,000 to $150,000 transactions.  Then in our direct-to-retail type business that we have, the transaction sizes are closer to $5,000 to $10,000, but then again you have anomalies there as well so I’d say we actually have a very, very diverse client base.

RJ: This is really interesting because it’s an asset class that’s been around forever, and then you changed the way folks can own gold, it’s truly innovative.  How did you go about thinking through the technology?  I imagine it’s a much more developed and robust system today, but at the time were there models you were drawing upon to help you design the technology?

Savneet: To be honest, I think our naiveté helped us there.  I didn’t have a technology background so the first thing I did was go find a CTO that I could trust and really get behind the project.  The two of us knew what the end goal was, which was to make an electronic way for people to buy and trade physical metals.  To do that, we discovered a lot on the fly.  Just to break it up, there’s two sides to our platform. The first is the supply side, which I really call the exchange, is convincing all of the offline order-takers to come on to the exchange. So these are trading desks, refiners, and dealers. On the other side, on the buy side, is the big wealth management firms.  The way our system works is we take a transaction from the buy side and give it off to the sell side and whoever bids the best price gets the transaction.

It was somewhat easier to get the supply side.  We pretty much told all of these suppliers, “Hey, we’re going to get you orders and this is how we’re going to give the orders.”  And because you’re giving them incremental business they are comfortable with whatever you give them.  But to build the demand side, we went to the wealth management firms and would say, “Whatever you need we’ll go out and replicate.”

RJ: What types of platforms, if any, did you look to as examples for building out a platform with these types of parties involved?

Savneet: So I’d say from a detailed level, we didn’t really have a playbook from day one, we had an idea of how these firms worked and tried to replicate it. From a broader business perspective we looked at models like Sabre for travel, LendingTree for loans and even eBay in some respect, just the process of bidding out an order was something for which we looked at other analogues, but it was custom developed.

RJ: You had initial financing from your two partners.  Did you then pursue additional capital to help you scale?

Savneet: We’ve had three large capital financings since then. One round from a large family office with a bunch of other strategic partners, including some of the members of our board, a round after that from a small private equity firm and then a round after that from a well-known bank.

RJ: Is the vision now to continue to scale and grow organically, or are there plans of going public or exiting?

Savneet: I think our future is to execute on our plan. Physical metals is a really, really large business, and the most important factor is it’s global.  The United States is five or ten percent of the market, and almost all of our client base is from the United States.  So I think our next immediate steps are to expand internationally with the same playbook that we’ve done here, and we’re dabbling in some things like digital currencies.  From a corporate financing structure, I don’t think we’re the kind of business that would ever want to go public so we don’t have a plan there yet.

RJ: Switching gears, I know you’re very active in the financial technology space and you see a lot of new, innovative things happening.  Are there any segments of the space that you’ve found particularly interesting?

Savneet: I think financial technology investing is very hard.  I say that because, unlike traditional venture startup investing, financial businesses tend to grow linearly before they grow exponentially unlike a social media company or a tech company where you can grow exponentially because there’s scalable technology.  That’s what makes it difficult.  The upside of what you’re finding though in today’s world is that all of these industries are being completely dis-intermediated.  So in lending you have all of these online loan companies coming on board, and I’ve invested in a couple of them where, instead of going to a bank, you go online and consolidate your loans or find a loan.  I think that’s going to be very fascinating and continue to be a big trend where you’re going to find niches of populations that will not be able to find access to loans, and they’ll be able to find that online.

I think another area that’s going to be interesting is digital currencies.  I’m not sure if Bitcoin is the winner, it may or may not be, but something about the technology is going to be applied to the rest of our world and that has huge ramifications across banking, and transfer payments to the third world so I think that’s a very exciting area.

RJ: And what are you most bullish on?

Savneet: So the area that I’m personally most excited about is data.  The sheer quantity of data and the number of new proprietary datasets are going to lead to enormous businesses.  In investing, if you can predict what’s going to happen or start to get information on what’s happening now immediately as opposed to 10 minutes later, there’s obviously great benefits on the trading side.  At the same time, I think you’re going to have amazing data on your employees.  So if you manage a business, the quantity and the data points you’ll have on each employee will be so much greater than what you have now that you’ll make better predictive outcomes, you’ll be able to hire better people, and fire people that aren’t working.  So, broadly, finance data will be applied up and down and actually create real value to businesses, and that’s what I think I’m most excited about.

RJ: In regards to employee data, are we talking broadly or within the financial sector?

Savneet: I’ll give you an example. So let’s say you work at a mutual fund or a hedge fund and you have an analyst who recommends a stock.  Right now, you see that analyst’s write up and you say, “Is that a good investment or not?”  I Imagine in the future what you’re going to find is that you’re going to see a write up of the analyst, but right next to that you’re going to see that analyst’s personal data.  You’re going to say, “The last time that particular analyst recommended a stock in this month, in this sector with this type of mood on his mind, the stock did X.”  So you’ll have data about that individual person, or you can take it to another more interesting level on the lending side.

There’s a huge portion of population that can’t get a loan, but what happens if that population is comfortable with you going onto their LinkedIn profile, or their Facebook profile? I imagine a person who has 500 Facebook friends and is very active on LinkedIn is likely going to care about paying back their loan. I may be talking about personal data, but I think it’s going to be applied to financial businesses, and I think it’s going to have more impact on that industry than any other industry.

RJ: Yes, I think the use of data clearly makes being able to lend more efficient and the same goes with being able to evaluate investment advice. Very fascinating. 

RJ: Savneet, this has been extremely informative and insightful. Again, I appreciate you taking the time.

Savneet: Great. Thanks so much, RJ.