Instavest, a Y Combinator-backed startup, wants to help retail investors benefit from the smart trades of others. It also wants to help savvy speculators profit by sharing their trading data.
Investors can list their trades on Instavest, including the company, share amount and rationale behind the investment. Other users can invest alongside the people willing to share their own purchases and sales. If you follow a trade, Instavest encourages you to block out a portion of your profits — in the neighborhood of 5 percent — that might arise from the transaction for the original listing entity.
The idea arose when the company’s founders, Saleem Khatri and Zain Allarakhia, ran into a problem: Friends and family wanted to trade with them, but they lacked a tool to do so effectively.
In short, using Instavest, smart investors can increase the potential reward of a winning trade without leaning on margin. Given that the party that makes the original trade can only pick up a percentage of a percentage on the capital that it did not bring to the table, it seems likely that most of their own profit will come with their own invested capital, but that could change over time if Instavest is able to attract a large user base.
I spoke to the company, which will show off its wares to a cattle car of investors next week at Y Combinator’s demo day, about its initial growth. Instavest initially disclosed to TechCrunch that during a closed beta, it quickly picked up 75 users who committed $1.1 million in assets to the platform. However, the company later told TechCrunch that it is now “significantly” above the 75 user figure, and that individuals are moving capital onto its service “rapidly.” Presumably, the company will release new numbers at demo day.
Instavest has an interesting growth strategy: Attracting active traders who post on sites like SeekingAlpha. According to the company, every “lead [investor] brings an additional 2-3 new users” — people who want to copy that person’s trades in particular.
While the company’s sample size isn’t too large — its closed beta launched less than two weeks ago — Instavest was willing to release two interesting data points: The average account size on the platform totals $15,000, and the average user executes several trades per month.
Instavest takes a cut of the cut of the profits. So, if an investor follows the trade of another user, and excises 5 percent of their profits for the original trader, Instavest takes 20 percent of that 5 percent, leaving 80 percent for the initial investor. That’s a great way to make money at scale, implying that the company intends to attract a robust number of accounts, and not, therefore, target a niche audience.
Instavest has only raised capital from Y Combinator. Provided that it can demonstrate continued growth, launch out of beta without faceplanting and continue to accrete invested funds onto its platform, I doubt it will struggle to attract capital.
Instavest, alongside other companies like Wealthfront and Seed, are part of a growing set of FinTech and FinServices companies that are taking on a backwards industry, albeit in very different fashions.
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