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Why Some Bankers Are Leaving Finance for Fintech Startups

91 points by peterkrieg 12y ago

deleted 12y ago
[deleted]
gadders 12y ago
Short version: They had seven figure salaries before hand so could afford to do it.
- protomyth 12y ago
  Basically the story of most "unpaid internships", you have to have means to get experience. Nice setup if you can afford it.
deleted 12y ago
[deleted]
carlmcqueen 12y ago
I had to fight to get to the bottom of the article which felt like a 'I know a few guys who...' article being used to define a trend. All in all it felt like another 'someone who makes more than you took a risk' being written because the risk can be turned into a marketing campaign for their start up. In the end it felt very light.
xianshou 12y ago
The fact that finance is ripe for (and now rife with) technological disruption is one factor pushing the bankers in that direction, but the primary one since 2008 has been this: it's the gold rush of the decade. A certain portion of the population, including most of the type-As, consistently pursue whatever opportunities promise the most money and prestige in the shortest time for the least work. Until the financial crisis, the best path to that end was getting rich as a trader. Now, startups offer greater risk but even faster and more tantalizing rewards. The exodus of finance towards tech will continue exactly until the next investment winter, at which point it will likely turn into a flight from SV-style tech into yet another sector - my best guess is health and bioinformatics.
- sharkweek 12y ago
  I think you're right on health/bioinformatics - Seeing a lot of VC money pointed at health/bio, and only expect this to increase. With 58% of VC-backed IPOs in 2014 being in healthcare related industries, there is an allure to invest more there (check out the bottom third of this datagraphic - http://blog.pitchbook.com/a-visual-breakdown-of-vc-in-2014/ http://blog.pitchbook.com/a-visual-breakdown-of-vc-in-2014/) Software exits were still certainly the highest (470 in 2014), but those most commonly occurred through acquisition and far less through IPO. Health/bio saw over 200 exits in '14, with about half of them going public.
- Shivetya 12y ago
  there is really too much regulation for a true disruption to occur, let alone any disruption might easily be perceived as criminal if the returns are too good either by over zealous Federal regulators or via subtle hints by your competitors to the same
  - ethbro 12y ago
    Remember there are both returns and costs. You focus on regulation around returns, and there's certainly some regulation around costs as well (mandatory reporting, etc). However, at seven-figure salaries you don't have to automation much person-work to show up on the final balance sheet.
- psaintla 12y ago
  I worked in medical tech for a few years, there are a few reasons people aren't going to flood into that sector. 1.) Regulation, HIPAA is a massive pain to deal with, the rules nebulous and require significant process that is expensive and time consuming. 2.) Violations of HIPAA lead to fines and even lawsuits from the office of civil rights. It used to be that Business Associates could hide behind the medical institutions to avoid this but with the Omnibus rules you'll face massive fines that will easily bankrupt any startup. 3.) The entire healthcare sector is extremely risk averse, slow moving and you cannot work around them you have to work with them which means you're going to move slowly too. 4.) You will HAVE to integrate with dozens of other ancient applications that medical institutions use, some of which have no documentation or publicly available source code. I hope you like searching through hundreds of pages of outdated HL7 and X12 documentation to figure out how a specific vendor screwed up their implementation. 5.) Large medtech companies regularly snuff out competition through lobbying and leveraging existing relationships in the medical community. So you've got a killer new medical app that will change the world? Big deal, your competition has three doctors who are leaders in their field(and conveniently board members). They will tell all of their buddies at the next American Cardiology Conference that your app is garbage. I hope you've got some big names associated with your startup and you can pay them handsomely. 6.) The medical field is a data hell. Some of it unstructured and non-sensical, much of it is structured but has no validation. That field you are getting from a third party API for albumin levels which was documented as g/dL, was actually entered in mg/L from the years 06/2004-12/2008, mg/dL from 09/2003-05/2004 and the proper documented g/dL for all other dates. Why was it that way? No one knows. You have to keep track of things like that for one field in one database for a single department in a medical institution with a few dozen departments that don't cooperate. Worst of all, it WILL change on you without you knowing.
puppetmaster3 12y ago
My experience is that most of the finance majors start in engineering. And switch majors to finance once they get to the engineering weeding out classes.
- threepipeproblm 12y ago
  Doesn't mean they won't convince someone they can be your boss.
- SpaceManNabs 12y ago
  That is interesting. At princeton, they do operations research and finance. It can get pretty math intense, almost as hard as the physics department in some cases. The engineering classes are easier compared to the ORFE classes, I believe.
  - yuncun 12y ago
    well at state school, that wasn't the case
  - threepipeproblm 12y ago
    Yes but the engineers can build bridges that don't crash, whereas the finance people who want to impress us with hard math brought us the derivative crash and high-speed trading with the "flash crash" etc.
    - freehunter 12y ago
      Bridges certainly can and do fail.
      - hga 12y ago
        As the example I'm most familiar with, this bridge should not have failed: https://en.wikipedia.org/wiki/I-35W_Mississippi_River_bridge https://en.wikipedia.org/wiki/I-35W_Mississippi_River_bridge The state of the art in the first half of the '60s was good enough to design such a bridge correctly, but the gusset plates that connect girders together were undersized. Then there's the famous example of Boston's Hancock Tower, which was designed and built per the current state of the art and code, but it turned out that did not consider some important things that could have caused it to collapse along its long, narrow side: http://www.pulitzer.org/archives/5826 http://www.pulitzer.org/archives/5826
dignati 12y ago
500,000 jobs in Software Development and Cybersecurity and 250,000 unemployed bankers who are all keen to work in technology? That sounds like nightmare material to me.
- logfromblammo 12y ago
  Business Analyst: "Hey guys, remember how we invested all that effort into replacing expensive workers with cheap computer programs to cut business costs? It turns out that we're all really expensive workers." Bond Trader: "So who would be the last expensive workers to be replaced?" Consumer Banking Executive: "Well, the ones writing the programs, obviously. If they replaced themselves, their programs would finish replacing everyone else practically overnight!" Options Trader: "I move that we all become software professionals!" Chorus: "SECOND!!" B.A.: "Those in favor?" Chorus: "AYE!!" Quant (whispering into phone): "I want to short the entire global economy, RIGHT NOW."
deleted 12y ago
[deleted]
jamesfe 12y ago
"He and three partners “went into a zero-salary moment” setting up Algomi Ltd., a bond sales management platform to be used by traders, portfolio managers and investors. Three years later, the 42-year-old says the far longer hours to bring home a fraction of his previous pay are worth it. “I enjoy what I’m doing, we’re creating something I think is making a difference, and it’s mine.” " It doesn't seem like he really left finance at all - in fact, it looks like he probably hired some coders and had them build a product that he oversaw, then sold it utilizing his experience and connections inside the financial industry. Are you really leaving finance for a tech job if all of your clients are in finance? Also, did he really risk his life savings on this? Seven figures for even just a few years would set you up to launch a company and still retain some life savings, it seems like.
- lob4tt 12y ago
  Zero-salary but all expenses are on the firm account, that is actually brilliant tax strategy.
- xedarius 12y ago
  You're quite right. He didn't leave finance, you often see traders leave banks and set up broker houses or hedge funds. Same stuff, different building.
- antr 12y ago
  > Are you really leaving finance for a tech job if all of your clients are in finance? I'd be concerned if these people left finance to create another photo sharing app. If their contacts, network, and expertise are in finance, and they are solving a problem this industry has, why not maximise their expertise? Plenty of good startups are started by insiders (be it networking, energy, healthcare, biotech, publishing, etc) > Also, did he really risk his life savings on this? Probably not, why should he? Wouldn't it be sensible to be frugal? Embrace the lean startup approach? I'd rather take the Eric Rice approach to startups, than that of Color Labs. Be lean, focus on solving a problem, great product, and focus on sales.
  - rday 12y ago
deleted 12y ago
[deleted]
bko 12y ago
Finance doesn't have the same allure to many as it used to have. It's partially due to salaries being overshadowed by stories of start-up founders but also the increased regulation and stifling of financial innovation. Whatever you think about the benefits of new financial products, being on the cutting edge of a new product like subprime mortgages or collateralized debt structures would be exciting to some and attract a lot of A-players. The profit potential was also there as groups getting in on the ground floor of these products would be able to charge a large premium for creating such products and specialize early on. That and financial transparency are reducing the ability to leverage very specialized product/market knowledge to make a large personal return (not to mention the threat of lawsuits). Although the salaries are still high, I don't think most people working in finance really believe they will become millionaires staying in the conventional banking route. The idea held by many is that tech start-ups offer more upside.
- collyw 12y ago
  "financial innovation" Yes that worked out well in the past. How some people believe that shuffling money about will make more wealth is beyond me. (Queue all the apologist remarks confusing the speed of things happening with actual wealth being generated).
  - bko 12y ago
    A lot of people would say the same about the merits of creating a new way to message people or share pictures. These financial products aren't about shuffling money around but shuffling risk around. For instance, one mortgage may be risky but you if you pool a thousand mortgages together, divide the cashflows so that one investor is willing to take on the first losses (for a higher return), and so on, this would attract many new buyers with different risk profiles. This would also reduce the cost of that mortgage to the buyer. This is the theory at least.
    - LunaSea 12y ago
      Imo people can create as many shitty photo-sharing apps as they want if this means not fucking up the world's financial system.
EGreg 12y ago
First lawyers now bankers. I'm glad I went with what I liked in College!
leroy_masochist 12y ago
Two thoughts on this: 1. From the headline, I was expecting this story to be about investment bankers walking away from ~$300K total comp jobs to join early stage startups that pay $85K salary plus equity. In fact, it's basically about finance people doing what finance people have done for years -- realize that they could make a bunch more money if they start their own firm. I am not sure that the fact that the new firms they are starting are using technology in order to disrupt longstanding paradigms is especially new or newsworthy. 2. I do think that the development of AI has some interesting implications for the business of investment banking. Specifically, I think that we are at or close to a point where software solutions that do the blocking-and-tackling tasks performed by a young analyst -- spreading comps, making profile pages for all the dominant players in an industry, etc -- will make analysts unnecessary. If I had to guess I'd say that in 10 years, the only reason there will be analyst programs on Wall Street will be to teach bankers the theory behind what is done in an instant by AI -- in the same way that student pilots learn to navigate manually even though there's GPS.
vonnik 12y ago
The first thing you should know is that investment banks trap graduates in some of the most boring jobs in the world. Spreadsheet jockeys and Power Point monkeys. If you're smart, you last two years as an analyst and jump to an MBA program where you will learn nothing but earn the right to be rehired one rung up by another bank as an associate. If you can avoid the axe, and navigate the politics, by working 14-16 hour days for several years you will finally be in a position to boss a lot of people around for an institution that serves no social purpose. So yeah, the bankers are jumping.
jgalt212 12y ago
Another funny thing about the disappearance of all these finance jobs, is I'm not sure they have really disappeared. After all, Bloomberg has the same number of terminals installed now that they did in 2008.

91 points by peterkrieg 12y ago

deleted 12y ago

[deleted]

gadders 12y ago

Short version: They had seven figure salaries before hand so could afford to do it.

protomyth 12y ago
Basically the story of most "unpaid internships", you have to have means to get experience. Nice setup if you can afford it.

deleted 12y ago

[deleted]

carlmcqueen 12y ago

I had to fight to get to the bottom of the article which felt like a 'I know a few guys who...' article being used to define a trend. All in all it felt like another 'someone who makes more than you took a risk' being written because the risk can be turned into a marketing campaign for their start up. In the end it felt very light.

xianshou 12y ago

The fact that finance is ripe for (and now rife with) technological disruption is one factor pushing the bankers in that direction, but the primary one since 2008 has been this: it's the gold rush of the decade. A certain portion of the population, including most of the type-As, consistently pursue whatever opportunities promise the most money and prestige in the shortest time for the least work. Until the financial crisis, the best path to that end was getting rich as a trader. Now, startups offer greater risk but even faster and more tantalizing rewards. The exodus of finance towards tech will continue exactly until the next investment winter, at which point it will likely turn into a flight from SV-style tech into yet another sector - my best guess is health and bioinformatics.

sharkweek 12y ago
I think you're right on health/bioinformatics - Seeing a lot of VC money pointed at health/bio, and only expect this to increase. With 58% of VC-backed IPOs in 2014 being in healthcare related industries, there is an allure to invest more there (check out the bottom third of this datagraphic - http://blog.pitchbook.com/a-visual-breakdown-of-vc-in-2014/ http://blog.pitchbook.com/a-visual-breakdown-of-vc-in-2014/) Software exits were still certainly the highest (470 in 2014), but those most commonly occurred through acquisition and far less through IPO. Health/bio saw over 200 exits in '14, with about half of them going public.
Shivetya 12y ago
there is really too much regulation for a true disruption to occur, let alone any disruption might easily be perceived as criminal if the returns are too good either by over zealous Federal regulators or via subtle hints by your competitors to the same
- ethbro 12y ago
  Remember there are both returns and costs. You focus on regulation around returns, and there's certainly some regulation around costs as well (mandatory reporting, etc). However, at seven-figure salaries you don't have to automation much person-work to show up on the final balance sheet.
psaintla 12y ago
I worked in medical tech for a few years, there are a few reasons people aren't going to flood into that sector. 1.) Regulation, HIPAA is a massive pain to deal with, the rules nebulous and require significant process that is expensive and time consuming. 2.) Violations of HIPAA lead to fines and even lawsuits from the office of civil rights. It used to be that Business Associates could hide behind the medical institutions to avoid this but with the Omnibus rules you'll face massive fines that will easily bankrupt any startup. 3.) The entire healthcare sector is extremely risk averse, slow moving and you cannot work around them you have to work with them which means you're going to move slowly too. 4.) You will HAVE to integrate with dozens of other ancient applications that medical institutions use, some of which have no documentation or publicly available source code. I hope you like searching through hundreds of pages of outdated HL7 and X12 documentation to figure out how a specific vendor screwed up their implementation. 5.) Large medtech companies regularly snuff out competition through lobbying and leveraging existing relationships in the medical community. So you've got a killer new medical app that will change the world? Big deal, your competition has three doctors who are leaders in their field(and conveniently board members). They will tell all of their buddies at the next American Cardiology Conference that your app is garbage. I hope you've got some big names associated with your startup and you can pay them handsomely. 6.) The medical field is a data hell. Some of it unstructured and non-sensical, much of it is structured but has no validation. That field you are getting from a third party API for albumin levels which was documented as g/dL, was actually entered in mg/L from the years 06/2004-12/2008, mg/dL from 09/2003-05/2004 and the proper documented g/dL for all other dates. Why was it that way? No one knows. You have to keep track of things like that for one field in one database for a single department in a medical institution with a few dozen departments that don't cooperate. Worst of all, it WILL change on you without you knowing.

puppetmaster3 12y ago

My experience is that most of the finance majors start in engineering. And switch majors to finance once they get to the engineering weeding out classes.

threepipeproblm 12y ago
Doesn't mean they won't convince someone they can be your boss.
SpaceManNabs 12y ago
That is interesting. At princeton, they do operations research and finance. It can get pretty math intense, almost as hard as the physics department in some cases. The engineering classes are easier compared to the ORFE classes, I believe.
- yuncun 12y ago
  well at state school, that wasn't the case
- threepipeproblm 12y ago
  Yes but the engineers can build bridges that don't crash, whereas the finance people who want to impress us with hard math brought us the derivative crash and high-speed trading with the "flash crash" etc.
  - freehunter 12y ago
    Bridges certainly can and do fail.
    - hga 12y ago
      As the example I'm most familiar with, this bridge should not have failed: https://en.wikipedia.org/wiki/I-35W_Mississippi_River_bridge https://en.wikipedia.org/wiki/I-35W_Mississippi_River_bridge The state of the art in the first half of the '60s was good enough to design such a bridge correctly, but the gusset plates that connect girders together were undersized. Then there's the famous example of Boston's Hancock Tower, which was designed and built per the current state of the art and code, but it turned out that did not consider some important things that could have caused it to collapse along its long, narrow side: http://www.pulitzer.org/archives/5826 http://www.pulitzer.org/archives/5826

dignati 12y ago

500,000 jobs in Software Development and Cybersecurity and 250,000 unemployed bankers who are all keen to work in technology? That sounds like nightmare material to me.

logfromblammo 12y ago
Business Analyst: "Hey guys, remember how we invested all that effort into replacing expensive workers with cheap computer programs to cut business costs? It turns out that we're all really expensive workers." Bond Trader: "So who would be the last expensive workers to be replaced?" Consumer Banking Executive: "Well, the ones writing the programs, obviously. If they replaced themselves, their programs would finish replacing everyone else practically overnight!" Options Trader: "I move that we all become software professionals!" Chorus: "SECOND!!" B.A.: "Those in favor?" Chorus: "AYE!!" Quant (whispering into phone): "I want to short the entire global economy, RIGHT NOW."

deleted 12y ago

[deleted]

jamesfe 12y ago

"He and three partners “went into a zero-salary moment” setting up Algomi Ltd., a bond sales management platform to be used by traders, portfolio managers and investors. Three years later, the 42-year-old says the far longer hours to bring home a fraction of his previous pay are worth it. “I enjoy what I’m doing, we’re creating something I think is making a difference, and it’s mine.” " It doesn't seem like he really left finance at all - in fact, it looks like he probably hired some coders and had them build a product that he oversaw, then sold it utilizing his experience and connections inside the financial industry. Are you really leaving finance for a tech job if all of your clients are in finance? Also, did he really risk his life savings on this? Seven figures for even just a few years would set you up to launch a company and still retain some life savings, it seems like.

lob4tt 12y ago
Zero-salary but all expenses are on the firm account, that is actually brilliant tax strategy.
xedarius 12y ago
You're quite right. He didn't leave finance, you often see traders leave banks and set up broker houses or hedge funds. Same stuff, different building.
antr 12y ago
> Are you really leaving finance for a tech job if all of your clients are in finance? I'd be concerned if these people left finance to create another photo sharing app. If their contacts, network, and expertise are in finance, and they are solving a problem this industry has, why not maximise their expertise? Plenty of good startups are started by insiders (be it networking, energy, healthcare, biotech, publishing, etc) > Also, did he really risk his life savings on this? Probably not, why should he? Wouldn't it be sensible to be frugal? Embrace the lean startup approach? I'd rather take the Eric Rice approach to startups, than that of Color Labs. Be lean, focus on solving a problem, great product, and focus on sales.
- rday 12y ago

deleted 12y ago

[deleted]

bko 12y ago

Finance doesn't have the same allure to many as it used to have. It's partially due to salaries being overshadowed by stories of start-up founders but also the increased regulation and stifling of financial innovation. Whatever you think about the benefits of new financial products, being on the cutting edge of a new product like subprime mortgages or collateralized debt structures would be exciting to some and attract a lot of A-players. The profit potential was also there as groups getting in on the ground floor of these products would be able to charge a large premium for creating such products and specialize early on. That and financial transparency are reducing the ability to leverage very specialized product/market knowledge to make a large personal return (not to mention the threat of lawsuits). Although the salaries are still high, I don't think most people working in finance really believe they will become millionaires staying in the conventional banking route. The idea held by many is that tech start-ups offer more upside.

collyw 12y ago
"financial innovation" Yes that worked out well in the past. How some people believe that shuffling money about will make more wealth is beyond me. (Queue all the apologist remarks confusing the speed of things happening with actual wealth being generated).
- bko 12y ago
  A lot of people would say the same about the merits of creating a new way to message people or share pictures. These financial products aren't about shuffling money around but shuffling risk around. For instance, one mortgage may be risky but you if you pool a thousand mortgages together, divide the cashflows so that one investor is willing to take on the first losses (for a higher return), and so on, this would attract many new buyers with different risk profiles. This would also reduce the cost of that mortgage to the buyer. This is the theory at least.
  - LunaSea 12y ago
    Imo people can create as many shitty photo-sharing apps as they want if this means not fucking up the world's financial system.

EGreg 12y ago

First lawyers now bankers. I'm glad I went with what I liked in College!

leroy_masochist 12y ago

Two thoughts on this: 1. From the headline, I was expecting this story to be about investment bankers walking away from ~$300K total comp jobs to join early stage startups that pay $85K salary plus equity. In fact, it's basically about finance people doing what finance people have done for years -- realize that they could make a bunch more money if they start their own firm. I am not sure that the fact that the new firms they are starting are using technology in order to disrupt longstanding paradigms is especially new or newsworthy. 2. I do think that the development of AI has some interesting implications for the business of investment banking. Specifically, I think that we are at or close to a point where software solutions that do the blocking-and-tackling tasks performed by a young analyst -- spreading comps, making profile pages for all the dominant players in an industry, etc -- will make analysts unnecessary. If I had to guess I'd say that in 10 years, the only reason there will be analyst programs on Wall Street will be to teach bankers the theory behind what is done in an instant by AI -- in the same way that student pilots learn to navigate manually even though there's GPS.

vonnik 12y ago

The first thing you should know is that investment banks trap graduates in some of the most boring jobs in the world. Spreadsheet jockeys and Power Point monkeys. If you're smart, you last two years as an analyst and jump to an MBA program where you will learn nothing but earn the right to be rehired one rung up by another bank as an associate. If you can avoid the axe, and navigate the politics, by working 14-16 hour days for several years you will finally be in a position to boss a lot of people around for an institution that serves no social purpose. So yeah, the bankers are jumping.

jgalt212 12y ago

Another funny thing about the disappearance of all these finance jobs, is I'm not sure they have really disappeared. After all, Bloomberg has the same number of terminals installed now that they did in 2008.