By Brett Philbin
Online investing startup Kapitall Inc. is betting the marriage of video-game design and trading software, along with the leadership of a brokerage industry veteran, will make it the broker for a new generation of investors increasingly accustomed to swiping app tiles to buy and sell stocks.
The three-year old company, which brought together a former Apple Inc. (AAPL) software designer, a Morgan Stanley (MS) trading executive and a video-game producer among others, is competing in a crowded field for online investors.
Kapitall though, brings something a little different to the table, or tablet, with drag and drop icons--resembling mobile phone apps--on its website that are designed for stock market rookies, offering brand logos instead of ticker symbols and a store where users can redeem "koins" they earn for trading activity in exchange for rewards, such as iTunes gift cards or free trades or tutorials.
That perk is one way the company wants to entice users to "play the market," says Jarrett Lilien, Kapitall chairman and chief executive, in an interview.
Mr. Lilien, a former chief operating officer of E*Trade Financial Corp. (ETFC) and 10-year veteran of the online brokerage, was named Kapitall's CEO on Aug. 27, reflecting the company's efforts to ramp up its user base and secure a new round of financing--efforts he believes could one day lead to an initial public offering, or position it as a possible acquisition candidate.
Kapitall, which launched in 2009, has about 100,000 registered users and 2,150 brokerage accounts, and hopes to boost both metrics to over 1 million and 25,000, respectively, by next year.
While those figures pale in comparison to Mr. Lilien's former employer E*Trade and bigger rivals like Charles Schwab Corp. (SCHW), he says there's room for a new player in the space, that offers a different kind of business model.
"In searching the retail online brokerage space, we were looking for the next disrupter. If you did a blind taste test, there's no way anyone could tell the difference between one [firm] or the other. If you did the same test with Kapitall, without a doubt you could tell," Mr. Lilien said.
Mr. Lilien, founder of Bendigo Partners--a venture capital and advisory firm--was an early investor in Kapitall nearly two years ago, helping it raise $7.3 million.
With the rollout of the Kapitall store, the launch of an affiliated news content site, and the approval of the company's application to be a Financial Industry Regulatory Authority-registered firm in January, Kapitall plans to pursue series B financing, another round of funding often made by private equity investors or venture capitalists that typically assigns a company a higher valuation.
Prior to receiving its registered broker/dealer approval from Finra, users on Kapitall's site previously had to set up an account with TD Ameritrade Holding Corp. (AMTD), which processed and cleared its trades.
Kapitall, based in New York, was, in part, the brainchild of Gaspard de Dreuzy, an entrepreneur in the video game industry, who produced game titles for systems including Nintendo Co.'s (NTDOY, 7974.OK) Wii and Microsoft Corp.'s (MSFT) Xbox.
Mr. de Dreuzy said that by employing videogame design for an investing site/brokerage, Kapitall aims to "appeal to a broader audience."
The company now clears its trades through Bank of New York Mellon Corp.'s (BK) Pershing LLC, earns money through transaction and asset-based fees, but also counts the store as a source of revenue.
Kapitall estimates that it spends $5 per member, compared to other brokerages, which can spend between $300 to $500 per account, when factoring how much those firms spend on advertising and other promotions.
Kapitall believes 2.5% to 5% of its members have funded accounts, though the company says that because of subscriptions and other store features, including lessons and research reports, it doesn't necessarily need all of its customers to be active investors.
Mr. Lilien says Kapitall has a revenue stream that allows it to "monetize customers the other firms don't want."
Kapitall's typical brokerage account holders are in the 32-36 age range, and the company had $2 million in total assets, including cash and equity, as of Sept 1.
Customers who join the site can at first trade using practice portfolios and can then graduate to funded accounts. Investors initially have an empty background on their screen, but have the ability to add specific stocks or companies to their so-called playground, which they can customize with backgrounds including a map of New York City.
Kapitall also allows users to send investment portfolios to other users and drag them to a feed, which allows the customer to view tweets related to those companies.
Write to Brett Philbin at email@example.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires