By Dominic Collard, writer at Grow Wire

In short:

  • In 2015, investment research guru Mike Carrodus harnessed years of entrepreneurial inklings to launch his financial services firm, Substantive Research.

  • The company considered recent European legislation and input from early clients to hit initial success.

  • Thanks to the bumps along the way, Carrodus has insights to offer on hiring at a startup, balancing founder life with relationships and knowing when to take risks.

Mike Carrodus remembers the exact moment his entrepreneurial fire was lit. It was 1998, the dotcom bubble was in full swing, and he was a young twentysomething living in Hong Kong.

“I saw this woman; she was standing on a street corner selling what I thought were magazines from a cardboard box,” Carrodus said. “It turns out they were the prospectus for an IPO of a tech startup that was the hottest thing in the market that month. She had found the box, realized the worth of what was inside and decided to make herself some money. And I just thought, ‘There’s an example of real entrepreneurial spirit -- taking the opportunity!’

A chance meeting on the street sparked Mike Carrodus's entrepreneurial spirit.

It would be quite a few more years before Carrodus spotted “his” opportunity: a new piece of regulation that the European Union was developing to govern the way financial institutions buy and sell research. What is known as MiFID II (a revised version of the 2007 Markets in Financial Instruments Directive) came into force in January 2018. Three years earlier, Carrodus had predicted the regulation’s impact: increased transparency and value in the financial research market. He founded London-based Substantive Research accordingly, in early 2015.

Now, just four years later, the data platform that is the cornerstone of the business serves 60 of the largest asset and investment fund management firms in Europe. Carrodus expects that figure to double by 2020.

The oldest business strategy of all

Put simply, Substantive Research’s platform uses AI and machine learning to match buyers with sellers. In this case, the “buyers” are fund managers and investment firms who need to know what’s happening in a particular sector, the variety of research available and what each piece of research costs. Substantive Research’s platform helps them find the most relevant and cost-effective research for their portfolios (in exchange for an annual subscription fee starting at £20,000, or about $25,500 USD).

Previously, “The largest providers of research were the big banks,” Carrodus said. “The top 15 had about 75% of the market. But these banks also offer other financial services to investors, so there was an underlying conflict of interest and, for some, the sense that the market was distorted.”

"There was an underlying conflict of interest and, for some, the sense that the market was distorted."

Substantive Research not only creates transparency in the research landscape but also promotes research that comes from sources other than big banks. And its inventory is varied.

“If you’re interested in quantitative equity trade ideas in Latin America, we’ll help you find the relevant insights,” Carrodus said. “If you’re a fund manager that has a preference for high-conviction, plain-speaking reports on economic growth in China, we’ll surface those to you. Alternative data in ESG trends more your thing? Someone, somewhere has the insights you need, and we’ll bring it to you.”

The “sellers” in Carrodus’s model are research companies that produce reports and insights about the financial fortunes and headwinds facing companies and markets. They benefit from Substantive Research by getting their work in front of those who should find them most valuable. The exchange happens in real time, with what many consider an unrivaled level of accuracy and transparency.

Substantive Research sells investment research in a way that aligns with fairly new U.K. legal requirements.

This exchange, Carrodus said, aligns his business with the new MiFID II requirements. Via the Substantive Research platform, fund managers can sample research in a compliant and transparent manner, while understanding how their perception of value compares to that of their peers.

As with all of the best business ideas, everyone wins. The investment houses get the right research they need to make better investment decisions, removing the noise and cost of overpriced and inconsequential insights. The publishers (the good ones at least) sell more of their research. The regulators clean up a shadowy $12 billion industry. And Carrodus gets to be the entrepreneur he always wanted to be.

It sounds like a simple idea: Match sellers of financial research to buyers, in the same way Uber does for rides, LinkedIn does for employment and eBay does for … well, pretty much anything. Yet when Carrodus was first looking at the opportunity, he realized the market had no equivalent.

Substantive Research, he said, continues to benefit from first-mover advantage.

“We haven’t seen anybody trying to replicate what we’re doing,” Carrodus continued. “But having proved the concept, we know the competition will be coming.”

Clients as consultants

The jewel in the crown of Substantive Research is its AI-infused digital platform that matches investors to research. Yet Carrodus is cautious about describing his company as a pure technology business.

“People have been just as crucial to our story right from the start,” he said.

The platform took three years to develop. The process was guided by suggestions and feedback from Substantive Research’s first customers, asset managers with reputations for innovation whom Carrodus targeted one-by-one.

To develop his platform, Carrodus relied on feedback from real-life fund managers.


To develop the platform, “We worked with 50 fund managers, analyzing what made them choose some analysts over others,” he said. “From that exercise, we arrived at 10 ‘matching factors,’ which are now the basis for the platform’s decision-making process.”

One factor the platform analyzes, for example, is “conviction level.”

“In other words, is the publication actually saying what it thinks will happen in a market, and has it committed to a time horizon for a trade or not, or is it simply hedging its bets so it can’t get blamed?” Carrodus said. “If the publication is deemed to have a low ‘conviction level,’ it scores a lower amount by that matching factor.”

In the early days, it was crucial to have paying clients consult on platform design, Carrodus said.

“If you can get it, user insight is priceless, but only if you trust that they’re telling you the truth,” he added. “A lot of people only tell you things they think you want to hear. You need people with skin in the game.”

"If you can get it, user insight is priceless."

“People-led” product development

Turning that “people-led” insight into a usable platform was Carrodus’s next challenge in building Substantive Research.

In technology terms, the answer was a combination of AI and a variety of machine learning tools, which essentially “read” research reports and classify them according to the matching factors that Carrodus and his user group identified.

Machine learning is at the core of Substantive Research's platform, but humans inspired its design.


To develop the platform, Carrodus sought out a highly-respected financial technologist as his CTO. He also roped in experts from the University of Cambridge. Evidently, they got the job done. But crucial though their roles have been, Carrodus doesn’t reserve special praise for them.

“Once you’ve been in a career for a long time and led teams, you realize how important it is to have the right people with the right attitude in every job,” he said. “As a startup, you may struggle to match salaries and benefits, but what you have is the canvas to allow people to really discover their limits and create a shared sense of purpose. That can be just as powerful.”

“As a startup, you have the canvas to allow people to really discover their limits."

The interplay between technology and personal relations is ingrained in Substantive Research’s past successes and learnings as well as its future plans, said Carrodus. He anticipates that the user feedback he relied on to build the platform will continue to serve the team in developing new revenue streams. Current product explorations, for example, include scenario analysis, by which Substantive Research would help clients predict the benefit or risk of replacing a given research provider with another in terms of coverage, quality and cost.

“Using a more consultative approach to help optimize our existing clients’ research budgets is teaching us how to create some amazing tools for them,” Carrodus said.

An idea is only as good as your ability to execute it.

Having a sound vision only gets you so far. Carrodus said just as important has been his ability to overcome struggles and get through dark moments.

“In 2016, we had a tough year,” he said. “We weren’t selling well and running out of cash. But then we realized that because of the new MiFID II regulations, our clients were no longer allowed to read research they weren’t paying for. So we knew that if we could monitor, filter and summarize the different research in the market, and not simply provide a shop window for it all, we then become a must-have platform instead of a nice-to-have.”

When sales dipped in the startup's early days, Carrodus and his team tweaked their strategy.

A close and honest relationship with existing clients was vital to understanding this. (They remain the ones Carrodus comes to first to check new ideas and build a development roadmap.) Equally important was self-belief and resilience.

“Because we had only just launched, you had some people marking us down as one of those short-lived startups,” Carrodus said. “So I would regularly try to take myself out of the picture and look at what we had from a purely objective view. Every time I did, I came to the same conclusion -- that if someone came to me with this business, I would invest in it.”

"You had some people marking us down as one of those short-lived startups. So I would regularly try to take myself out of the picture and look at what we had from a purely objective view."


Work vs. life

Now, living the entrepreneurial life that had tempted him for so long, does Carrodus wish he had acted on his inclination sooner in life?

“If I was giving advice to young people asking me that question, I’d say don’t wait to give it a go,” he said. “Find a couple of mates who can do things that you can’t, pool your talents, and see what happens. Worst case, you have a bit of fun and become more employable because of the experience.”

“If I was giving advice to young people, I’d say don’t wait to give [entrepreneurship] a go."

Yet, Carrodus is just as much an advocate for the “more mature first-time entrepreneur.” In his case, a 20-year career on the research and publishing side of the financial sector was the key to spotting his business opportunity.

“I’d worked for NDR and Euromoney, two of the largest providers of financial analysis and editorial content to the investment sector,” he said. “So I knew all the frustrations -- of working really hard to produce first-class research only for it to be buried amongst inferior reports and from the other side, of paying a lot of money for content that didn’t provide real insight. So when MiFID II was being discussed, I could see where a new business could fit in.”

With age also comes the benefit of a strong support network, explained Carrodus.

“There’s no getting away from the fact that to make any new business a success, you have to totally immerse yourself in it,” he said. “So it can never be just about you. The people closest to you have to be completely bought-in too and never resent you for the impact it has on them. Some new businesses fail because family and friendships fail first.”

Carrodus said he learned not to explain every entrepreneurial high and low to his inner circle, because there are many and more lows than highs at the start. Now, his work hours remain long, but he keeps a routine of nightly dinner with his family.

Risk meets resilience

Carrodus’s perception of risk has completely changed since starting Substantive Research, he said. Having worked his way up to a global director role at his previous employer, he was confident he could deliver the nuts and bolts of a successful business: having the vision, setting the strategy, resourcing it properly and convincing people to part with their money. What he was less sure about was the risk of leaving a secure, well-paid job to put his entrepreneurial inclinations to the test.

Carrodus's entrepreneurial experience challenged his ideas about risk and resilience.


Perceiving that risk as a “one-off jump into the deep end … you either sink or swim” had held him back, he said. That perception, however, was incorrect.

“What I’ve learned is that risk isn’t about one big leap, but about continuous leaps,” Carrodus said. “You get over one hurdle, and the next big challenge is right around the corner. And that makes it easier to deal with, because you build up resilience to the fear and learn how to bounce back from the knocks.”

“What I’ve learned is that risk isn’t about one big leap, but about continuous leaps."

He added that it’s also wise to consider the risk of inaction.

“Back when I was first thinking about this [starting Substantive Research], one option was to establish it as part of the business I was with at the time,” he said. “But it wouldn’t have come to life in the way I had envisioned it. That’s just what happens to ideas in big businesses; they get diluted by consensus and processes. When I balanced the risk of that happening with the reward of knowing that everything I decide and do from then on matters, it became a more straightforward decision.”

The future of Substantive Research

Many leaps later, Mike’s move is now paying dividends. A 90% client renewal rate has given the business a healthy footing from which to grow. The European market now established, the U.S. is next on Carrodus’s radar. He recently returned from New York, where Substantive Research hosted a conference for 450 investment managers. Asia won’t be far behind, and Carrodus has high hopes for markets worldwide.

“It was something I grasped about the opportunity straight away,” he said. “Financial legislation never exists in a continental vacuum. If pension fund managers in Europe are getting better transparency and a lower cost compared to their global colleagues, soon enough the rest of the world is going to come knocking too.”