Case Study - SnapTrade

May 14, 2024

SnapTrade is a story of two first time founders who have navigated a series of hurdles and challenges since 2017, and whose non-linear journey saw them participate in Propel during two stages of their startup in 2017 and 2019, followed by YC in 2022. The co-founders came with backgrounds in both technology and their industry - financial investments. 

Over the course of their journey thus far, they’ve launched a B2C investing app called Passiv and grew it to a bootstrapped team of 10 before pivoting the business to their B2B solution called SnapTrade. Their early years were defined by bootstrapping because they consistently heard from VCs that their business model, market size and traction was not enough. It was only after their pivot that they were able to raise capital from VCs.

The co-founders, also referred to as “The Brendans” (Brendan Wood, CEO and Brendan Lee Young, CRO) met through a mutual friend and quickly discovered they had lots in common. Wood had a prototype of an investing app that he wanted to launch, and Lee Young had experience in customer success with a strong entrepreneurial network. Just two weeks after meeting, they connected again in a coffee shop to discuss Wood’s app and agreed to partner as co-founders a few days later. Their prototype evolved into the Passiv app over the next few months, with the goal of giving retail investors a streamlined portfolio management experience.

This B2C solution was what was in the market when they joined the Propel program in 2017. They quickly received some ‘tough love’ from their coach, along with some expert advisors who Propel recommended. The assessment was that Passiv appeared to be running towards a regulatory brick wall. This prompted direct action by the founders to discuss their approach directly with the FCNB (Financial and Consumer Services Commission New Brunswick) and the CSA (Canadian Securities Administrators) to gain regulatory clarity. 

After the Brendans successfully navigated the regulatory hurdles, they continued building to the original vision of working in partnership with brokers, to enable more investors to easily manage their investments. Their online brokerage partner saw a significant increase in engagement from their end users, including dormant accounts being reactivated, increased trade frequency, and new assets moving to the platform. Unfortunately for Passiv, this was not compelling for venture investors, nor were they seeing meaningful benefit from the trading platform’s growth in revenue. During the Propel program, Passiv identified AUA (assets under administration) as their north star metric and grew the metric from $10M to $100M.

The Brendans faced several uphill battles.

First, due to the Passiv app requiring a tight integration with a brokerage account in order to operate, Passiv’s total addressable market was limited to its supported brokers, which was only one broker initially. Despite a strong and healthy partnership, a single brokerage was not sufficient to build a high-growth business. They made their first hire with the goal of refactoring the backend to make it scalable to multiple brokerages, however this resulted in added complexity to their backend and development process.

Second, they needed money to build. Passiv’s revenue hadn’t ramped up as quickly as hoped, so despite the strong traction, VCs were reluctant to invest. The feedback was consistently ‘just one more thing’ to prove, but it never materialized. The Brendans had to be resourceful, so they invested personal funds from themselves and some friends, leveraged funding from programs like PETL and IRAP, and hired some part-time collaborators in exchange for equity.

While building out the multi-broker backend, a number of factors culminated into a ‘rough patch’. The team had quit their full-time jobs to focus on Passiv, they had been disappointed with a commercial LOI that dragged on too long, they hired prematurely which led to inevitable layoffs, and they were considering shutting down the business. They were demotivated and felt like they were a long way from a sustainable business. At this critical juncture in 2019, they decided to enroll in Propel’s Incite program, compelled by the key value of accountability, focus on customer and market development, and the importance of having a robust financial model to plan company operations.

Shortly after finishing Propel Incite, they finally received a term sheet from VC for a small investment. Unfortunately, this too was a disappointment. The terms were sub-par and the investment amount simply wasn’t enough to make a difference for the business. They made the difficult decision to decline the investment and turn their attention exclusively to revenue. Shortly thereafter, Passiv closed their first commercial deal and finally started earning meaningful revenue.

The founders maintained their focus on revenue for the next two years, growing the team to 10 employees while continually improving their product. During this time, it became increasingly clear to the Brendans that Passiv’s growth would be limited by two key things: supported brokerages and the size of their investing niche. 80% of their engineering budget was funding brokerage integrations, but their users were asking for more and more features that didn’t fit the passive investing archetype.

They had an epiphany in the summer of 2021, when several other investing apps reached out to Passiv wanting to use their brokerage integrations. There was no off-the-shelf supplier for these integrations, which is why Passiv invested so heavily to build it themselves. Yet Passiv was the only app benefiting from the integrations and the only app funding the build-out.

The scaling opportunity was there - the idea of hundreds of apps using these integrations. The cost of building and maintaining the integrations could be amortized across hundreds of apps, and users would have a wide selection of investing apps to choose from instead of needing one app to do everything.

After extensive soul-searching and team alignment conversations, the Brendans decided to pivot into SnapTrade in the fall of 2021. SnapTrade would provide an embedded trading API as a service to other investing apps, and facilitate collaboration between fintech entrepreneurs and established broker dealers.

There was concern that this would be the death of Passiv, but the Brendans felt that Passiv would be an invaluable asset for establishing the SnapTrade network and overcoming the cold start problem. In theory, SnapTrade could leverage Passiv’s existing 10 brokerage integrations and relationships to create the MVP for the SnapTrade API, allowing it to bypass years of development that would otherwise be required to get to that point.

SnapTrade was accepted into YC’s W22 batch just a few weeks after the pivot and raised a $2.2M US round of investment shortly after the batch finished.

As of 2024, SnapTrade supports 25 financial institutions around the world and there are over 40 apps running on the platform. SnapTrade’s network connects over $7B in assets and continues to quickly grow traction.

Key founder take-aways: The founders emphasize the importance of participating in accelerators such as Propel for the value you gain as a founder, to gain the right habits to build and scale a business, and YC for the far reaching network. They also purport that the longer you delay raising VC, the better position you will be in when you do raise, and a friendly reminder,  VCs are not your customer.