By Brett Philbin
Online investing startup Kapitall Inc. is betting the marriage
of video-game design and trading software, along with the
leadership of a brokerage industry veteran, will make it the broker
for a new generation of investors increasingly accustomed to
swiping app tiles to buy and sell stocks.
The three-year old company, which brought together a former
Apple Inc. (AAPL) software designer, a Morgan Stanley (MS) trading
executive and a video-game producer among others, is competing in a
crowded field for online investors.
Kapitall though, brings something a little different to the
table, or tablet, with drag and drop icons--resembling mobile phone
apps--on its website that are designed for stock market rookies,
offering brand logos instead of ticker symbols and a store where
users can redeem "koins" they earn for trading activity in exchange
for rewards, such as iTunes gift cards or free trades or
tutorials.
That perk is one way the company wants to entice users to "play
the market," says Jarrett Lilien, Kapitall chairman and chief
executive, in an interview.
Mr. Lilien, a former chief operating officer of E*Trade
Financial Corp. (ETFC) and 10-year veteran of the online brokerage,
was named Kapitall's CEO on Aug. 27, reflecting the company's
efforts to ramp up its user base and secure a new round of
financing--efforts he believes could one day lead to an initial
public offering, or position it as a possible acquisition
candidate.
Kapitall, which launched in 2009, has about 100,000 registered
users and 2,150 brokerage accounts, and hopes to boost both metrics
to over 1 million and 25,000, respectively, by next year.
While those figures pale in comparison to Mr. Lilien's former
employer E*Trade and bigger rivals like Charles Schwab Corp.
(SCHW), he says there's room for a new player in the space, that
offers a different kind of business model.
"In searching the retail online brokerage space, we were looking
for the next disrupter. If you did a blind taste test, there's no
way anyone could tell the difference between one [firm] or the
other. If you did the same test with Kapitall, without a doubt you
could tell," Mr. Lilien said.
Mr. Lilien, founder of Bendigo Partners--a venture capital and
advisory firm--was an early investor in Kapitall nearly two years
ago, helping it raise $7.3 million.
With the rollout of the Kapitall store, the launch of an
affiliated news content site, and the approval of the company's
application to be a Financial Industry Regulatory
Authority-registered firm in January, Kapitall plans to pursue
series B financing, another round of funding often made by private
equity investors or venture capitalists that typically assigns a
company a higher valuation.
Prior to receiving its registered broker/dealer approval from
Finra, users on Kapitall's site previously had to set up an account
with TD Ameritrade Holding Corp. (AMTD), which processed and
cleared its trades.
Kapitall, based in New York, was, in part, the brainchild of
Gaspard de Dreuzy, an entrepreneur in the video game industry, who
produced game titles for systems including Nintendo Co.'s (NTDOY,
7974.OK) Wii and Microsoft Corp.'s (MSFT) Xbox.
Mr. de Dreuzy said that by employing videogame design for an
investing site/brokerage, Kapitall aims to "appeal to a broader
audience."
The company now clears its trades through Bank of New York
Mellon Corp.'s (BK) Pershing LLC, earns money through transaction
and asset-based fees, but also counts the store as a source of
revenue.
Kapitall estimates that it spends $5 per member, compared to
other brokerages, which can spend between $300 to $500 per account,
when factoring how much those firms spend on advertising and other
promotions.
Kapitall believes 2.5% to 5% of its members have funded
accounts, though the company says that because of subscriptions and
other store features, including lessons and research reports, it
doesn't necessarily need all of its customers to be active
investors.
Mr. Lilien says Kapitall has a revenue stream that allows it to
"monetize customers the other firms don't want."
Kapitall's typical brokerage account holders are in the 32-36
age range, and the company had $2 million in total assets,
including cash and equity, as of Sept 1.
Customers who join the site can at first trade using practice
portfolios and can then graduate to funded accounts. Investors
initially have an empty background on their screen, but have the
ability to add specific stocks or companies to their so-called
playground, which they can customize with backgrounds including a
map of New York City.
Kapitall also allows users to send investment portfolios to
other users and drag them to a feed, which allows the customer to
view tweets related to those companies.
Write to Brett Philbin at brett.philbin@dowjones.com
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