Stock trading apps have proliferated over the past few years, targeting different demographics and audiences who feel they need to engage in investment activities to live healthier financial lives.
In the latest development, sheda two-year-old commission-free investment platform based in the Middle East, announces that it has closed a $20 million Series A round led by Peter Thiel’s Valar Ventures with participation from global investment firm Knollwood to expand in the region and reach more consumers.
CEO Feras JalbautYears of investment experience working with Barclays, Standard Chartered and a Dubai-based family office led him to launch baraka in 2020. His upbringing also played a role. In an interview with TechCrunch, Jalbout recounted how he learned about investments like stocks and government-backed pension funds while growing up in Canada, where investing is institutionalized. In the Middle East, however, the game was different. For years, people in the region have invested through traditional savings options such as bank deposits and real estate, according to Jalbout; therefore, baraka brings much-needed variety.
“When I moved to the region, it was surprising to see that people were not investing much in digital assets as there was little or no regulation for it,” said the founder and CEO. “Many people in the region earn tax-free income and do not invest. This is a big part of the reason why I started baraka because very few fintech companies offered investment options. I wanted to make an app that I would enjoy using based on my experience as a professional investor.”
Before getting its license to launch its trading app, baraka was a content platform using newsletters and podcasts to educate retail investors in the Middle East, especially in the UAE, about stock investing and financial literacy. He launched his app a year ago, armed with the backing of Y Combinator and a seed round of $4 million. This arsenal has prompted baraka to offer its “thousands” of investors access to more than 5,000 US stocks and 1,000 exchange-traded funds (ETFs). Investors can start investing with as little as $1 (~AED 3.79) on the platform. Jalbout added that the platform has users in the “tens of thousands” who actively trade and consume in English and Arabic.
Of this user base, 56% are under the age of 30, a sign of the young regional population looking for digital investment solutions. More than 50% are first-time investors, indicating a keen interest in learning about equity markets through baraka’s content and starting their investment journey on the platform. Additionally, 83% have traded three times or more in at least one month in their lifetime on the baraka app.
Since baraka is a zero-commission platform, it does not earn from commissions, trades or spreads. Instead, it’s from a subscription service, about $10 (~Dh37.99) per month, that retail investors can use to access more company financial data and stock reports from baraka’s partner Refinitiv. Baraka is exploring other revenue streams, one of which is to launch commission-based or asset management products that would generate an annuity over time.
With this new investment, the Robinhood-style platform will double its presence in the GCC and Egypt, its new market (where it will face competition from Thndr) and drive customer acquisition. The company said it will add new services over the next 12 months, including access to features such as dividend reinvestment plans and extended trading hours.
Offering local stock trading is also in the pipeline. Taduwal, the most prominent stock exchange in the Middle East, raised $4.7 billion through 27 new listings in the first half of 2022, contributing to almost 300% increase in IPOs on exchanges in the region this year. As such, baraka committed much of this investment to work with local stock exchanges such as Tadawul and regulators to secure licensing to democratize access to local shares.
“Our ambition is to also offer local stocks by partnering with Taduwal, which is the Saudi Stock Exchange, the Dubai Financial Market (DFM) and the Abu Dhabi Stock Exchange (ADX),” said Jalbout of baraka’s plans to offer local investors retail stocks.
Baraka has raised $25 million in total venture capital funding from investors such as Class 5 Global, Global Founders Capital and Venture Souq. Its new investor Valar Ventures has also backed similar digital brokerage startups like Bitpanda and Shares (also backed by Global Founders Capital).
General partner at Valar Ventures, Andrew McCormack, said this was his firm’s first investment in the Middle East’s emerging fintech ecosystem, brimming with potential. “We are encouraged by the early signs of traction that Baraka has been able to show. We really look forward to working closely with the company as they enter this exciting new phase of growth across the region,” he added.