Startups vs Traditional Buy-Side Vendors, Which Is Better?

When choosing a buy-side software provider, asset managers are weighing the pros and cons of choosing smaller, emerging vendors over more established 30-, 40-, or even 50-year-old vendors. are often weighed against each other.

In this post, I will discuss the key factors related to vendor size to consider when making this decision.

emerging vendor

Emerging vendors may exist for good reasons in the first place. They will likely offer cloud-native solutions built with the latest technology and architecture, as well as modern user interfaces (UI) and user experiences (UX). However, this should not be taken for granted and should be checked during the selection process.

Additionally, newer vendors may have a deeper appreciation for each client because they have fewer customers and are likely to pay more attention to each client. It can be a personal and very high quality service. At the same time, support times may be limited due to smaller support teams than larger vendors.

However, there are also risks associated with emerging buy-side system vendors. For example, such vendors may have feature gaps because they have less time to develop features. A common way to ensure that the required functionality is in place is to run a proof of concept on your portfolio and workflow before deciding to hire a new vendor.

established vendor

In contrast, traditional buy-side software vendors may cover strong capabilities. They could spend more time building software that has been battle-tested for decades. At the same time, workflows can be clunky due to features added and added as onion layers without a proper end-to-end design underpinning everything.

Another benefit is the potential for more references and case studies. It’s important to make sure these are not only numerous, but ones that are particularly relevant to you. In other words, the vendor’s core business is to provide services to other companies like yours. Otherwise, you risk being the exception in your customer base and your needs may not be prioritized.

Established companies may not prioritize research and development (R&D). On the same topic, their solution can have a high total cost of ownership due to outdated technology and architecture. For example, an upgrade project can be a significant cost that doesn’t exist for cloud-native solutions. Any of these aspects are automatic just because the vendor has been around for a long time, so it’s important to evaluate them in procurement.

Items not related to vendor size

When making a decision between an emerging buy-side software vendor and an established buy-side software vendor, it is important to consider factors not related to size, such as the vendor’s ownership structure. For example, does the vendor have conflicts of interest or direct/indirect relationships with other industry players, such as being owned (partially or wholly) by a competitor?

Ultimately, which buy-side provider to choose is based on a number of factors, with vendor size being just one of these factors. Fortunately, there is more and more information available online, including evaluation guides and advice on modernization programs for asset managers.