Contrarian Views for Startups: Come Together, Over Regs?

As I'm on the judging panel, I've spent the last few weeks reading through submissions for this year's Sell-Side Technology Awards. (FYI: This winners of which will be announced next week.)

In every category, there were at least a couple initiatives that were driven by regulation and answering challenges created therein. That's why I was a bit surprised when I read a dispatch from Dan DeFrancesco, who attended this year's Fintech Startups Conference in New York.

David Jegen, a managing director at Devonshire Investments, a private investment arm of Fidelity Investments, said that those hopeful entrepreneurs in the audience shouldn't develop their products around regulation. Here's why:

"We look at regulation as we never want to make an investment that depends upon it. You can't control it, and that is a huge factor. You can't control whether it happens, and you definitely can't control the timing. It's nice as a catalyst, though. If it's fueled through some secular trend that we think might happen anyway, and it's capable of pushing that forward, that's nice."

"[Regulation is] moving at a glacial pace and rules are being written years after the Dodd-Frank Act was passed. But it's still fuel in an otherwise natural fight on Wall Street, moving towards electronic trading, and one that's good to have."

I understand Jegen's point. Take Dodd-Frank for example: That regulation has progressed slowly and is being fought on Capitol Hill and stripped out piecemeal by Wall Street. Should a Republican find him or herself in the White House come January 2017, DFA will have a major target on its proverbial back.

If you read the article, Jegen said that development based on regulatory changes works when it's an obvious progression of the market, i.e., the electronification of trading.

But to me, and from what I've heard from my contacts, the statement, "We need to do this because of Regulation XYZ" is far more powerful at opening up the purse strings at a large bank or broker than saying, "Can I please have some money because this will one day make us more efficient but we might not see the ROI for a little bit." Regulation can prove a useful prod.

Of Consortiums or Going it Alone

Again, I highly recommend reading the full article, as it provides some seemingly contrarian views. Another hot take came from Long Ridge Equity Partners co-founder Jim Brown, who said that consortium arrangements, while promising, tend not to work when their members are major sell sides.

"They all put in money for a consortium, but really no one is generally in charge of the investment. The investment sort of wanders without a lot of oversight from the banks."

Surely this depends on the project and their stake in seeing it succeed, though. One of the more interesting developments I've seen over the last 12 months was the launch of Symphony Communication Services, a consortium of major investment firms. Led by David Gurle, I'd be surprised if that firm "wandered" as it looks to address vital messaging and communication needs.

It's a consortium of firms, and of various groups, that are looking to address the implementation of a consolidated audit trail (CAT). The Plato Partnership is a consortium of asset managers and broker-dealers looking to develop a new trading platform. SunGard's entrance as a transfer agency utility for mutual funds is basically a consortium as it's gobbling up discarded pieces from other banks, and it is co-sourcing a derivatives processing unit with Barclays too.

These initiatives may fail, but if they do, they'll fail because the technology doesn't work — not the nature of the arrangement. Sure, there have been failed consortium-led launches ... but that's also the basic fact of life for all startups: Many will fail.

Five Random Thoughts/Links

* Baseball's back and for the first time in several years, as a fan of the Houston Astros I'm finally excited for the season ahead. While this is still probably a sub-.500 team, with the potential to break even, the investment that the organization has made in growing its farm system is coming to fruition. At the head of the youth movement is phenom outfielder George Springer. While his bat was cool in the first week, his glove single-handedly saved a win for Houston yesterday. Take a look at this grab.

* The HBO crime drama "True Detective" was a revelation last year. This year they're starting over with a whole new cast and storyline. There's high potential for this season to shoot off the rails, but in show-creator Nic Pizzolatto I trust. Here's the first teaser for Season 2, replete with many 1,000-yard stares.

* The person who hired me onto Waters, Phil Albinus, is an excellent follow on Twitter. Here's a funny take he had on PR and Dark Pools.

* My grandfather came to this country when he escaped the genocide of the Armenians by the Ottoman Empire at the beginning of the 20th century. This month marks the 100th anniversary of the genocide, which is commemorated on April 24.

Many prominent voices have spoken about the atrocities that occurred during that time as the Ottoman Empire collapsed. Even Pope Francis made news on the subject yesterday.

But in a rather surreal picture of how celebrity dominates the national discourse, it can be argued that the person who has brought the most attention to the genocide is none other than, of course, Kim Kardashian. Life is...odd.

* Speaking of Armenia, my favorite band, System of a Down, is touring to help bring attention to what the Armenians endured during the genocide. The band, which is comprised of Armenian-Americans, will be playing in Armenia for the first time ever. They'll also have a show in Detroit, which has a large ethnic Armenian population and where my grandfather first went upon immigrating to America, before moving to the Bronx. If you've never seen a SOAD concert, I highly recommend it. Big time energy.