Start up vs legacy buy-side vendor, which is better?

When it comes to selecting a buy-side software provider, asset managers often find themselves weighing the pros and cons of choosing a smaller, emerging vendor over one that is more established and have been around for 30, 40 or even 50 years.

This post looks at the key factors related to vendor size that should be considered when making this decision.

Emerging vendors

An emerging vendor is likely to exist for a good reason in the first place. They likely offer a cloud-native solution, one that is built with the latest technology and architecture, and a modern user interface (UI) and user experience (UX). However, this shouldn't be taken for granted and should be confirmed in a selection process.

Additionally, a modern vendor may have a deeper appreciation for each client, as they have fewer customers and are more likely to give each one a lot of attention. This is likely to me more personal and very high quality service for you. At the same time, support hours might be limited due to a smaller support team than a large vendor will have.

However, there are also risks associated with an emerging buy-side systems vendor. For example, such vendors might have functional gaps due to having less time to develop features. A common way to confirm that the functionalities required are in place, is to perform a proof-of-concept with your portfolios and workflows before deciding to go with an emerging vendor.

Established vendors

In contrast, legacy buy-side software vendors are likely to have strong functional coverage. They've had more time to build software that has been battle-tested for decades. At the same time, the workflows might be clunky due to functionalities that have been added and added as layers on an onion, without a proper end-to-end design to underpin it all.

Another area of benefit is that they will likely have more references and case studies to offer. It's important to check that these are not only many, but relevant for you in particular - i.e. that the vendor's core business is to service other firms like you. If not, you risk being an exception in their client base and your needs are likely not going to be prioritised.

An established may not prioritize research and development (R&D). On the same topic, their solution is likely to have a higher total cost of ownership due to older technology and architecture, for example upgrade projects might be a significant cost that is non-existent for a cloud-native solution. Neiter of these aspects are automatic just because the vendor has been around for a long time, so it's important to evaluate in a procurement.

Items not related to vendor size 

When making a decision between an emerging and established buy-side software vendor, it is important to consider factors unrelated to size, such as the ownership structure of a vendor. For example, does the vendor have any conflict of interest or direct/indirect affiliation with other industry participants, such as being owned (partly or entirely) by a competitive firm?

Ultimately, the decision of which buy-side provider to choose will be based on a variety of factors, and vendor size is just one of these factors. Fortunately, more and more information is becoming available online in terms of evaluation guides and advice on modernisation programmes for asset managers.