Capnetix and the Cloud

I read this article today in the Wall Street Journal Technology Report entitled "Get Off My Cloud".  I'm sure that many of the questions raised in the article affect the decision making of the executives at the fund companies who are evaluating InvoiceConnect as a solution to their problem with invoicing with distributors.

People may be curious why we developed Fundix first (institutional Transfer Agency, international, SaaS based), but we are coming to market with InvoiceConnect first.  One of the reasons is pointed out in the article.

"Cloud computing is not about taking what people are doing already and moving it to the cloud," Mr. Lynch says. "In general, if something is working in IT you don't mess with it (1). Where cloud becomes really interesting is with new things where you have the option of doing it on your own server in-house or going with the cloud(2). Then you're much more likely to move those to the cloud than traditional IT."

In Capnetix case, Fundix addressed a Transfer Agency problem that "is working in IT" (1).  People already have TA2000, or Envision, or some other workhorse that's been around for years.  Yes, the old way is expensive and inflexible to run, but it is perceived by potential customers as a fixed problem.

However, the intermediary fee invoicing situation is a completely different situation.  The business problem causes pain for all fund companies, and there is no real solution on the market for the problem.

InvoiceConnect is an e-Invoicing solution that works.  It absolutely is "a new thing you have the option of doing it in the cloud".

Security

There was another mention in this article about the wish for security, and also the mixing of data between companies.  I can't go into it here, but we've done a very good job of securing data in several ways.  Come talk to us about it when you're ready.

Capnetix has begun the search for funding - VC FAQ #1 - Mass Customization prevents commoditization

Capnetix is at the point of market entry, and is now searching for the right investor to help us capture this market.  As we speak with investors, they ask us questions about our company, and in order to be efficient, we wanted to start an FAQ so subsequent investors can benefit from our conversations with earlier ones..


"Our view is that ‘connector’ companies tend to commoditize quickly and it takes a lot more engineering after that to keep customers happy"

The VCs question was excellent, and we were very fortunate that it points right to an "Unfair Advantage" that Capnetix brings to the financial services record keeping and reconciliation sector, but that we had not yet documented.  Please let me explain.

Prior to founding Capnetix, I started another firm, whose core value add was to package and deliver snap together supply chains for mass customized manufactured products.  If you are not familiar with mass customization, think of how you purchase a Dell computer from their website.  You start with a base product line, then make selections of different options to customize the product for your specific needs.  Each of the product options is "pre-engineered" to work correctly.  Once you place the order, the manufacturing system dynamically creates a Bill of Materials which defines exactly how your computer will be built, that may be different from all other computers made on the line that day.

As the final manufacturing line assembles your product, it communicates to it's connected supply chain for replenishment.

So how does this apply to Capnetix and InvoiceConnect?

Here is the analogy.  Mutual fund companies deliver their funds to end investor through a "supply chain", which is their specific network of intermediaries.  The "options" are the parameters that specify the contract between the fund company and the intermediary for reimbursement.  Capnetix provides a unique way to quickly and accurately define this combination of multiple products and the parameters associated with the billing.  Our ability to quickly and cheaply "mass customize" combinations will differentiate us from the competition and provide a barrier to market entry by larger competitors.

This unique capability prevents commoditization, and allows for very low cost customization (specifically the engineering required to specialize a particular product/parameter combination).  To our knowledge, no other competitor can provide this capability, and it is the key to the value proposition that Capnetix provides.

If you are an investor, and would like to learn more, please contact Charlie Peppler at cpeppler@capnetix.com.

Solving a more immediate problem - Intermediary Invoicing

Capnetix developed it's first product (Fundix) as an off the shelf, SaaS delivered, configurable record keeping solution for institutional transfer agency.  In bringing this solution to market, we learned a lot about how people think about back office of record keeping technology.  We learned that no matter how great the value Fundix could provide to streamline TA record keeping, improve customer service, lower cost and risk, the hard business fact is, people are not yet ready to think about changing their institutional transfer agency record keeping approach. 

So, what's an innovative company to do?  Well, find a new, bigger problem that's on a lot of people's minds, and solve it for them


In August of 2009, I was invited into a phone call between Hubbard Garber, principal at Barrington Partners, and John Mari, VP - Global Strategy and Business Intelligence for Janus.  During the phone call, John explained the immediate (and large) business problem associated with intermediary fee invoicing.

Without going into the details here (we're working on a whitepaper now to give you all the background information if you're interested), the basic problem is this.

Mutual fund companies (like Janus, Oppenheimer, MFS, Eaton Vance...) pay intermediaries (like Schwab, Merrill Lynch, Ameriprise, Edward Jones) to distribute their funds to end investors.  The problem lies in the way that distributors send invoices to fund companies, how contracts are structured, and how the fund companies have to validate, allocate and pay those invoices. 

The bottom line....it's pretty much all manual, expensive, and full of operational risk for the fund companies.  The people in accounting operations push forward with all manner of custom Excel spreadsheets, but there is significant business pain.  That pain is now affecting C level executives of fund companies, who want to scale their distribution, without scaling cost or risk.

Today, Capnetix is bringing the solution (called InvoiceConnect) to market as a configurable, SaaS delivered record keeping service.  What used to be a manual data handling nightmare, is now highly organized, accessible, and easy to use solution, removing pain from both the fund company executives, as well as the operations people who have much better things to do.

Although Fundix is a fully working solution, ready to go, you will see a shift in the conversation to a more immediate problem for executives, which is how to streamline the handling of intermediary invoices.

Seeing is Believing

I'm learning a lot about how people think in the back office of the financial services world. I talk to a lot of people about the problems they wrestle with, and have frequently heard the quote "There has to be a better way to do this". And yet at the end of the day, they are resigned to the fact that they have to "get the job done", there is no other way to do it on the horizon, and turn around and hammer through another manual spreadsheet the same they did it last month.

I was talking with one gentleman, and he really liked what we were talking about, but he had stuff to get done, and was about to put the new solution on the back burner "to think about" until I explained to him a very simple concept. What if, instead of seeing a generic demo with fake data, he could see the actual solution running with his own data, without effort on his part.

The tone in his voice changed. He realized there might be a way out of doing the digital equivalent of carrying sandbags one more time. He said, sure let's setup a webex and take a look.

No more manual data munging. Click a button to process invoices and see reports. No budgets to worry about. No IT hassles. No 6 month implementations. He would be able to show his boss a great way to get things done, save money and cut risk.

And sure enough, he will be able to see it working with his own data. No limbs to step out on. No risks to take. No time spent, until he actually sees it running.

And that's what's called "Seeing is believing".