Well, here's another 'one-click' startup that has successfully raised a large amount of money from investors who should know better and who clearly demonstrate that they don't understand this product or this market segment. Take a look at https://www.dubapp.com/blog/announcing-dub to amuse yourself.

To be clear here, we are impressed with the team at Dub, for two reasons:

So why is this ridiculous?

This is web2 tech. This is nothing about copy-trading, rebalancing, one-click or even regulation that could not be built the same way in the past 20 years. The ability to apply a portfolio to an account is simple code; a high school level coding problem. They're using Apex Clearing at their core and are copying public filings from real funds - this is all old school stuff. This is no innovation here other than the hype.

Lots of companies have looked at this opportunity and tried to build very similar businesses over the last 20 years. It's such an obvious idea, yet there hasn't been the expected disruption. Now you could argue that there were lots of social networks before Facebook, so the fact that there haven't been any successes is a poor argument. Fair enough, but we think there is something far more fundamental which is at the root of the problem.

Who is the Customer?

The customer is the retail investor. That's where the money comes from - Dub charges a monthly fee via the app and/or a management fee and potentially, other brokerage related fees (payment for order flow anyone??).

In this and similar centralized models, the retail investor is the customer and the strategy creator is ultimately reduced to being a data supplier.

The pitch to creators is a simple one - “we (Dub) have lots of retail investors, you can make money if they copy your strategy”. It has potential, but in reality this is a very bad deal for creators.

Why is that?

Because creators are asked to provide strategies, but they don't own the copying users, they don't decide the business model and they don't even own their data.

It is also worth noting that Dub are trying to offer something 'extra'. Something that you can't get somewhere else. Why should you take your money out of your S&P500 tracker and put it with Dub? It's because you want better returns and in reality this is difficult to do on a regular basis. Most strategy creators do not have Alpha, despite what they claim on Twitter, Reddit or Substack. Dub, like many others, are looking for the 'diamonds in the rough' so they can 'democratize investing' but then ask them to give up their strategies, while they own the user base, the data and define the business model.

So as a creator, you give away your strategy, you don't own your users, the data and you can't define your business model. If, as a creator, you genuinely have a great strategy, then you are better rewarded in the traditional system where you have much greater control over all those elements.

The main thing is to make sure the main thing is the main thing

In a traditional fund, the fund performance is ultimately the main thing. Funds live and die by their performance. This performance is determined by the investment strategy. There are of course subtleties like the level of risk or fund objectives, but in the simplest terms, a fund that consistently outperforms the market on a risk adjusted basis will be rewarded with capital and will profit from fees charged.

Dub will ultimately also live or die by the quality of strategies they offer and yet strategy creators are not Dub's main thing. Retail investors are the main thing because this is how Dub makes money. Dub charges monthly subscription fees and management fees; there are no performance fees. Their primary goal is therefore to maximize the AUM and the number of users. This is depressingly familiar to an industry many of us are trying to disrupt.

Dub is not a service built for strategy creators; it is a service built for investors.

This subtle difference is why every similar service has failed to disrupt and this is why Dub will also fail.

Don't Worry, Be Happy

Let's be positive. Let's say as a creator you build a great following and lots of people copy your strategy. You've built a great business and you're making lots of money.

But then, Dub changes their fee structure (in their favor of course) and your business is no longer as profitable. What are you going to do about it?

And then you learn that they changed their fees because they are running out of money; ultimately they shut down.

Your business was built upon Dub - but you don't own the users so you can't take them elsewhere; you have lost your revenue source and you've lost your investing performance history too.

We have seen this so many times - trying to build a business on top of a centralized party is fraught with problems because many business critical elements (like price, users and data) are not in your control and at any point, the service could be removed (any original Twitter API developers out there?). Investing reputations take decades to build so don't trust a fragile startup with it.

Valuation: Setting Up For Failure

The other part of the problem is that by raising so much, the expectations are set so high that the chances of success are extremely low. Dub needs to perform miracles.

Let's keep the numbers simple. A $17m seed is roughly a $100m valuation (what's an extra $10 or $20m here or there). For VCs to get a good return on that, they'd need to be looking at a 10x. Sound fair?

That's a billion dollar valuation for a simple copy trade app. To do this, the user base will need to be in the hundreds of thousands. Dub doesn't just need to be the best copy trade app, it needs to completely dominate the entire industry, all while delivering a very vanilla and uninspiring product that lacks innovation and that has been shown time and time again not to disrupt.

It's not that Dub can't be a profitable business or get some users, it's that the investors have setup the play to be a billion dollar company and this won't happen because no-one involved in this business is experienced enough to understand the product and what drives it.

Unless they can achieve incredible growth metrics within a very short period of time, this is not a viable venture capital backed business.

Good luck achieving that growth.

We Give Them 3 Years…

Dub has enough money to last a few years. They are good at the hype, so I guess we'll be hearing more from them as they spend their money on marketing. We give them 3 years - then we'll be reading the press release about how they sold for an 'undisclosed sum' to Yahoo Finance to save some face (anyone remember Commonstock, their $35m raise and subsequent sale?).

Doing the same thing, the same way is likely to generate the same results. We hope Dub enjoys those beers, because this is not what disruption looks like. What a disappointing use of time, energy and capital.