German fintech NaroIQ has
secured $6.5 million in seed funding to build what it calls a European
alternative to the US-dominated exchange-traded fund market.
NaroIQ Raises $6.5M Seed to
Build European ETF Infrastructure
The Cologne-based company raised
the money from Berlin venture firms Magnetic and Redstone, along with existing
investor General Catalyst, which increased its stake in the round. Magnetic,
which focuses on critical infrastructure investments, led the financing.
NaroIQ plans to use the cash to
expand its digital platform that helps companies launch and manage ETFs and
mutual funds. The startup’s pitch centers on making it cheaper and faster for
smaller fund providers to compete against industry heavyweights.
“We are witnessing a
once-in-a-generation shift: ETFs will replace mutual funds in the retail market
over the next decade, which means that margins will shrink significantly,”
said Chris Püllen, NaroIQ’s co-founder and CEO.
Targeting Europe’s
Infrastructure Problem
The European fund market handles
€22.9 trillion in assets but runs largely on outdated systems, according to
industry association EFAMA. Ernst & Young recently scored the
digitalization of fund servicing at just 1.6 out of 5 points, creating margin pressure
across the industry.
The numbers show the squeeze
fund managers face. While assets under management have grown 8.8% over five
years, profits only climbed 0.7%, consulting firm zeb found.
“Without a technological
solution, only large fund providers with scale advantages will survive,
creating an alarming concentration of power and wealth in the market,” added Püllen.
Financial technology firms are springing up across Germany like mushrooms after the rain. One example of success is Trade Republic, which manages €100 billion in assets, as well as lemon.markets, which offers a Brokerage-as-a-Service platform.
Breaking US Market Control
NaroIQ is betting on growing
demand for financial sovereignty in Europe. Currently, US-based companies
manage two-thirds of European ETFs and handle administrative work for
four-fifths of them. The top five ETF providers control 75% of market share.
David Rosskamp, founding partner
at Magnetic, sees the infrastructure play as essential. “With foundational
financial services still reliant on manual, fragmented back-end processes,
NaroIQ’s digital infrastructure is critical to unlocking efficiency, real-time
transparency and cost savings,” he said.
The company’s platform uses APIs
and cloud technology to automate fund operations that currently require manual
processes. This should lower the cost of launching new funds and managing
existing ones.
Market Entry Strategy
Founded in 2022 by Püllen and
Nils Krauthausen, NaroIQ previously raised $3 million in pre-seed funding led
by La Famiglia (now part of General Catalyst) and Discovery Ventures in March
2024. The company plans to launch its first partner integrations this year,
using the new funding for technical development and regulatory licensing.
The startup faces significant
challenges breaking into the fund industry, which has high barriers to entry,
strict regulations, and established relationships. But NaroIQ is counting on
smaller providers paying for technology that helps them compete with larger
rivals.
Whether the company can actually
challenge established players remains an open question, but the funding
suggests investors see opportunity in Europe’s push for greater financial
independence from US providers.
This article was written by Damian Chmiel at www.financemagnates.com.
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