I love this question.
Despite:
transparency over the investment thesis we share
long term incentive alignment between us and customers through a performance-based fee structure
and the buying and selling executed independently in our customers’ own brokerage accounts
someone still asks this.
To me, this signals that I look rich (having so much equity that I need exit liquidity) even with my $10 Casio watch haha.
Jokes aside, this signals a deep-seated trust issue that is prevalent in the finance sector. And I get it. Finance has been mired with scandals, shadow banks, frauds and so on.
So instead of being defensive about the question, I want to take it seriously. Let me walk through it the way I’d walk through it in my own head if I were to be a potential customer myself.
First, what is exit liquidity?
You can skip this if you already know what is an exit liquidity.
Tom wants to sell his house in Senopati, South Jakarta. The house is riddled with spooky ghosts.
He bought it five years ago for Rp 17 billion (about USD 1 million). Now he wants out. He finds an agent. “Mr. Tom, I can realistically sell it for USD 800k.” Tom is not satisfied. “I want at least USD 2 million. I’ll double your commission if you pull it off.”
The agent nods and goes to find a buyer.
Not someone who knows Senopati — those people know about the ghosts and won’t pay anywhere near USD 2 million.
So the agent finds John, an American moving to Jakarta to work in SCBD as an expat. The agent pitches the area, the food, the hotels nearby.
John was convinced and John becomes Tom’s exit liquidity. John was ignorant about how bad the place was and he later finds out about the ghosts. He got furious. But the transaction is done.
Tying it back to stock investing, customers as exit liquidity essentially means that they are unsuspecting buyers (retail investors) to purchase our shares of a company at elevated prices.
Back to the question
So, are our customers our exit liquidity?
The answer is: no.
But “no” is not a good enough answer. Because again, it requires trust on your part toward the service provider. And the whole reason you’re asking the question is that you don’t want to extend that trust on faith.
So instead, let’s assume that yes, we want you to be our exit liquidity. That’s why we have a marketing budget. That’s why we work hard to acquire you.
What’s the cost? What’s the reward of doing it?
The reward
Let’s start with the reward and be generous.
Assume that we work with a public company with a market cap of Rp 1 trillion. They want to sell 1% of their shares to the public.
That means they want to sell Rp 10 billion worth of their shares.
Now let’s be generous. Let’s say that our commission is 50% of the sales value. Which means we will get Rp 5 billion. Big, ya?
Note: I want you to understand that if we actually did this, it would be a crazy unethical thing to do because of the conflict of interest. But let’s just play along.
So how many customers do we need to sell Rp 10 billion worth of shares to?
Our minimum committed fund is Rp 25 million. But let’s say that on average our customers have Rp 250 million (10x the minimum).
Also note: If Budi recommends to all-in on one stock, that would be disastrous.
But let’s run the cartoon version of the math first. Rp 10 billion / Rp 250 million per customer = 40 customers.
40 customers and we walk away with Rp 5 billion. That looks like the reward.
Except “all-in on one stock” is not a recommendation any responsible advisor would actually make. Because the customers will just say “no, I don’t want to all in”.
In reality, a position size for a single stock in a concentrated portfolio is more like 10%. At a 10% position size, each customer takes Rp 25 million of this one stock.
Rp 10 billion / Rp 25 million = 400 customers.
So the real number is 400. Four hundred of our customers, all simultaneously convinced that the same one stock deserves a tenth of their portfolio, all on the recommendation, all at the same time. That is what it would take to clear Rp 10 billion of inventory.
Now let me size that against our probable size of a customer base.
Let’s be generous again. Assume that 10% of our Instagram followers (16K) are customers — that is already a wildly optimistic conversion rate. That puts our customer count at around 1,600.
400 out of 1,600 = 25% of our entire customer base.
A whopping quarter of every customer we have ever earned, burned in a single transaction.
But at least we walk away with Rp 5 billion?
But how big is Rp 5 billion, actually?
Let me be honest about the reward side, because Rp 5 billion sounds big in isolation.
If I split it 50-50 with Budi, with no marketing budget set aside, we each walk away with Rp 2.5 billion.
We also have VC investors. I am pretty sure they would be super pissed if they only got a fraction of that Rp 5 billion. So another chunk of it gets eaten there.
And here is the part that actually grounds it for me personally.
If I worked at Goldman at Rp 100 million per month, I would earn Rp 2.5 billion in roughly two years. With none of the conflict-of-interest baggage. With no risk of losing 400 customers after a single transaction.
So the “reward” is not a transformative number. It is roughly two years of a Goldman salary, paid out once, in exchange for torching the business we are trying to build for the next few decades.
When you frame it that way, the question isn’t “is it ethical?” — that one is easy.
The question is, “who would even take that trade?”
The cost
Now the cost side. There are three layers.
Layer 1: the direct churn.
Those 400 customers are gone. Not in the polite, “I need this money” way. Its more of “I will never speak to Recompound folks again” way.
Because in their minds:
“Ni gara2 pake Recompound gua jadi nyangkut di saham X.”
Whatever lifetime value we would have earned from them — gone. With performance-based fees, the customers who stay the longest are the ones we earn the most from, because compounding does its work on both their portfolio and our fees.
400 customers, over a decade of fees, is not a “meaningful chunk of revenue.” For a business at our stage, it is the business.
Layer 2: the word of mouth.
Indonesia’s working professional / entrepreneur community is small. Really small. It runs on dinners. On WhatsApp groups. On who-introduced-whom at last weekend’s BBQ.
400 burned customers don’t leave quietly. They tell people.
Let’s say each one tells 7 people. That’s 2,800 prospects who have been pre-poisoned against us before we ever get a chance to talk to them.
Whats more, the prospects who matter most to us, the analytical, slow-to-trust, asks-hard-questions kind, are exactly the kind who weigh peer testimony heavily. Negative word of mouth doesn’t just lose us 2,800 names on a spreadsheet. It loses us the 2,800 names we most wanted on the spreadsheet.
CAC for that kind of prospect is not cheap. It is some of the hardest customer acquisition work in finance, because the kind of person who can tell the difference between a real fiduciary and a salesman is, by definition, hard to sell to.
Layer 3: the moat.
This is the worst one.
Trust is a moat, especially in finance. Trust is so much of a moat that, arguably, it is the product. The portfolio is the deliverable. The trust is what makes the deliverable worth anything.
Once we burn it, we cannot unburn it.
Every competitor who comes after us will use this story against us forever. “Remember when Recompound did X to their customers?” It becomes the first thing anyone hears about us.
So the full ledger:
Reward: Rp 5 billion gross — which, after splitting with Budi and accounting for our VC investors, lands closer to two years of a Goldman salary per person, paid out once
Cost: a decade of LTV from 400 of our hardest-won customers, plus ~2,800 poisoned prospects, plus the permanent destruction of the one moat that actually matters in this business
I suppose it is quite clear that the economics does not make sense 😅
But I insist that this question is a good one
Three things stand out to me when someone asks this question.
First, the fact that you’re even asking is a signal.
It’s a signal that you think analytically and that you don’t take claims at face value. That you want to see the incentives before you trust someone.
These are exactly the kind of people we want as customers. They are also, frankly, the hardest kind to acquire. Burning a customer who asks this question, just to make a one-off windfall, would be a fatal economic decision.
We work real hard to find you.
Second, one-off deals are bad fundamentals.
The kind of business we want to build is one where customers stay for a decade because economically speaking, the longer they stay, the more valuable they become to the business. Where their fund compounds. Where they invite their friends. Where they introduce their kids to us when their kids start earning.
That kind of business does not get built on burning people. It gets built on showing up well, repeatedly, for a very long time.
A one-off Rp 5 billion windfall, paid for by destroying the customer base, is not a business. It’s stupidity at its finest.
Third, again trust is a moat. Why would we destroy our own moat?
In a finance business, trust is the only durable competitive advantage. Anyone can buy the same Bloomberg terminal. Anyone can hire CFAs. Anyone can build a model. What they cannot easily buy is a decade of customers who say,
“These guys did right by me even when no one was looking.”
If we make you our exit liquidity, we are voluntarily destroying the only thing that makes Recompound worth more than the sum of its salaries.
So the answer is no
But more importantly: the answer is no, and you don’t have to trust me on it.
You can do the math and see if it makes sense for yourself 🙂 If you fancy, you can even play with the variables and assumptions on the cost and rewards that are made.
That’s the answer I’d rather put out. Because I believe that trust in finance shouldn’t be a leap of faith. It should be what’s left when you’ve done the analysis and the analysis still says: this is aligned with my goals.
If you’re the kind of person who wants to do that analysis — welcome. You are exactly who we built this for.