FeedStock, a new wave research management provider, received an undisclosed investment from London-based venture capital firm Illuminate Financial Management. Feedstock plans to use the proceeds to build out its development team.
As we reported a year ago, Feedstock uses machine learning to understand what topics are of interest to an analyst or PM and prioritize research inputs accordingly. Although primarily positioned as productivity tool, the system also acts as source of internal metrics designed to help asset managers determine which research sources are adding value. The platform’s ability to weed out unwanted or low-value research has become a key selling point in the context of MiFID II’s new research procurement rules.
When we profiled the company a year ago, the focus was on emails, which remain the primary delivery mechanism for written research. Since then, the system capabilities have expanded to track phone contacts with external research providers and research-related events, both of which potentially provide higher value to asset managers than written research.
The system links to internal voice systems to track calls, identifying which calls are related to research providers, the frequency of calls and their duration. “Accepting twenty calls from a research provider suggests value,” said co-founder Charlie Henderson in a phone interview, “but less so if the calls are twenty seconds each.” Feedstock monitors events by connecting to internal calendar systems to track all interactions, ranging from conferences to company meetings.
Feedstock applies machine learning to the internal usage metrics, to determine which sources are most useful. “We collect many different information points and triangulate the value derived,” explained Lucas Wurfbain, co-founder. For example, if an analyst makes notes or copies from a research report, that is a more significant indicator of engagement than simply opening the document.
The net result is a turnkey system for collecting and evaluating research usage metrics, which can then be used as an input to broker voting and other valuation tools. Although Feedstock is not interested at this point in developing a conventional broker voting application, it thinks of itself as a real-time version of the broker vote, continuously assessing the value of external inputs.
The firm says that it is gaining clients interested in managing their external research spending, irrespective of the funding method chosen to pay for research. Feedstock says it has clients who are paying for research from their P&L, who are focused on only paying for those providers that add value. For these clients, Feedstock represents a cost-management tool more than a productivity enhancer.
Feedstock was founded in 2015 with the original intent to be a research distribution platform, then pivoted to focus on a productivity/audit tool instead. The system launched in beta last year. Co-founder Charlie Henderson is an experienced salesperson, having started his career as an analyst for small-cap London broker Cenkos Securities. Co-founder Lucas Wurfbain has an extensive buy side pedigree, having worked as a portfolio manager at Fortress Investment Group, at Rubicon Fund Management and at Insparo Asset Management and an analyst at GAM.
The firm has ten development staff currently and plans to increase its development spending with the latest capital raise.
The new research procurement rules imposed by MiFID II are putting a premium on research usage metrics, as both the sell-side and the buy-side increasingly use engagement measures as an input to pricing research. Sell-side firms are moving away from PDF distribution of research reports in an attempt to improve research metrics used to negotiate fees with asset managers. In turn, asset managers can use statistics supplied by brokers, but are increasingly collecting their own internal metrics.
Although research aggregation platforms like RSRCHXchange or Alphametry promote their ability to collect research usage metrics, they are largely confined to written research, and typically that sold through their platforms. Because Feedstock’s application resides behind the asset manager’s firewall, it can better assess actual usage not only of written research, but potentially more valuable services such as analyst access or events.
Feedstock is more directly competitive with traditional research management systems such as Code Red (owned by FactSet) and Tamale (now part of SS&C Advent). However, it has added an artificial intelligence component and is using MiFID II as a catalyst for adoption. BlueMatrix is also venturing into this space with its recent launch of Research Manager, which, similar to Feedstock, offers entitlement controls at both a firm-wide and user level so that asset managers can screen unwanted research providers. With its latest financing, Feedstock will be able to scale faster, increasing its chances of ultimate success.