Raja Palaniappan thinks he has an idea that Wall Street is going to hate.
The trader-turned-tech-entrepreneur wants to do to the business of private bond placements what electronic platforms are doing to fixed-income trading: cutting out the investment banking middleman and providing investors (and issuers) with a cheaper, more efficient service.
Palaniappan, 29, clearly sees the opportunity, having worked for several years as a bond trader in London at Credit Suisse and Nomura Securities Co. He recalls watching his investment banking colleagues prepare road shows for corporate borrowers and realizing that issuance was an incredibly manual process, and there was quite a bit of money that was being left on the table.
So he teamed up with a former Nomura trading colleague, Robert Taylor, to launch a fintech start-up called Origin Markets. The outfit is creating an electronic platform that will allow corporate borrowers to offer private placement bonds directly to institutional investors.
Origin was one of eight start-ups chosen by Barclays Bank earlier this year to spend nearly three months in its fintech accelerator in East Londons Mile End neighborhood. There, Palaniappan got to refine his idea and build a working model of Origins electronic platform. The two partners have just completed a round of angel investment, raising £850,000 ($1.3 million) from an undisclosed venture capital firm, and have added two staffers, bringing their total head count to six.
We intend to use the £850,000 and the new staff to showcase the platform to potential clients and aim to launch to the public early next year, Palaniappan says. Our clients are institutional investors on one side, but on the other our clients are corporate treasurers.
Ironically, Palaniappan hails from San Francisco, an hours drive north of Silicon Valley. But after earning an electrical engineering degree from Massachusetts Institute of Technology, he went to work at Lehman Brothers International in London, then joined Nomura when Lehman collapsed.
Later, on the corporate bond desk at Credit Suisse, he watched as hedge funds repeatedly made tidy profits by capitalizing on their access to corporate bonds at issuance and promptly flipping them in the secondary market.
Palaniappan sees a shift in influence from sell-side firms to the buy side, with big funds like Canadas Ontario Teachers Pension Plan hiring investment bankers to manage their money. Weve seen an interest from those guys to explore other ways of deploying their capital rather than just waiting for the syndicate pipeline, he says.
One of the attractions of setting up in London is that the private placement business is less developed than in the U.S. and offers greater scope to a disrupter like himself, Palaniappan says. He also believes Europe is a particularly ripe market because banks tend to lend to their own national champions. Origin will give French and Dutch institutions, say, an opportunity to buy privately placed bonds from a German company that they might never see in the current setup.
Palaniappan acknowledges that start-up funding is more plentiful and valuations more lofty in the U.S. But I think fintech is one of the areas in which London does have a competitive advantage because greater influences, such as mentorship from other entrepreneurs, are here, he says.