
Why Some Bankers Are Leaving Finance for Fintech Startups - peterkrieg
http://www.bloomberg.com/news/articles/2015-03-15/bankers-embracing-zero-salary-in-tech-may-make-peers-obsolete
======
xianshou
The fact that finance is ripe for (and now rife with) technological disruption
is one factor pushing the bankers in that direction, but the primary one since
2008 has been this: it's the gold rush of the decade.

A certain portion of the population, including most of the type-As,
consistently pursue whatever opportunities promise the most money and prestige
in the shortest time for the least work. Until the financial crisis, the best
path to that end was getting rich as a trader. Now, startups offer greater
risk but even faster and more tantalizing rewards. The exodus of finance
towards tech will continue exactly until the next investment winter, at which
point it will likely turn into a flight from SV-style tech into yet another
sector - my best guess is health and bioinformatics.

~~~
psaintla
I worked in medical tech for a few years, there are a few reasons people
aren't going to flood into that sector.

1.) Regulation, HIPAA is a massive pain to deal with, the rules nebulous and
require significant process that is expensive and time consuming.

2.) Violations of HIPAA lead to fines and even lawsuits from the office of
civil rights. It used to be that Business Associates could hide behind the
medical institutions to avoid this but with the Omnibus rules you'll face
massive fines that will easily bankrupt any startup.

3.) The entire healthcare sector is extremely risk averse, slow moving and you
cannot work around them you have to work with them which means you're going to
move slowly too.

4.) You will HAVE to integrate with dozens of other ancient applications that
medical institutions use, some of which have no documentation or publicly
available source code. I hope you like searching through hundreds of pages of
outdated HL7 and X12 documentation to figure out how a specific vendor screwed
up their implementation.

5.) Large medtech companies regularly snuff out competition through lobbying
and leveraging existing relationships in the medical community. So you've got
a killer new medical app that will change the world? Big deal, your
competition has three doctors who are leaders in their field(and conveniently
board members). They will tell all of their buddies at the next American
Cardiology Conference that your app is garbage. I hope you've got some big
names associated with your startup and you can pay them handsomely.

6.) The medical field is a data hell. Some of it unstructured and non-
sensical, much of it is structured but has no validation. That field you are
getting from a third party API for albumin levels which was documented as
g/dL, was actually entered in mg/L from the years 06/2004-12/2008, mg/dL from
09/2003-05/2004 and the proper documented g/dL for all other dates. Why was it
that way? No one knows. You have to keep track of things like that for one
field in one database for a single department in a medical institution with a
few dozen departments that don't cooperate. Worst of all, it WILL change on
you without you knowing.

~~~
eropple
_> 1.) Regulation, HIPAA is a massive pain to deal with, the rules nebulous
and require significant process that is expensive and time consuming.

> 2.) Violations of HIPAA lead to fines and even lawsuits from the office of
> civil rights. It used to be that Business Associates could hide behind the
> medical institutions to avoid this but with the Omnibus rules you'll face
> massive fines that will easily bankrupt any startup._

I agree with the last two-thirds of your post, but this doesn't match my
experience. HIPAA is basically a bunch of "best effort" stuff and you can do
shockingly little in terms of security and be fine by any audit I've ever
seen. Unencrypted data at rest, encrypted data with keys on disk on the same
machine, no SSL anywhere _including external endpoints_...and the auditors
never asked or looked.

~~~
gknoy
That sounds dangerously similar to saying, "... you don't have to actually
follow the law, because no one checks, and you'll never get caught". Maybe
it's my inner pessimism, or maybe I'm channeling Woody Allen, but I'd expect
that I would end up being the poster child for What Not To Do were I to run a
company that knowingly slacked off on HIPAA.

~~~
eropple
No, I'm saying that HIPAA and its related case law are vague enough to make
"best effort" a matter of _very permissive_ interpretation. The shitty state
of technology and security (I do platform engineering/infrastructural stuff,
so this matters to me) in medical startups, even worse than startups in
general, is why I don't work for one anymore; I like sleeping at night.

------
jamesfe
"He and three partners “went into a zero-salary moment” setting up Algomi
Ltd., a bond sales management platform to be used by traders, portfolio
managers and investors. Three years later, the 42-year-old says the far longer
hours to bring home a fraction of his previous pay are worth it. “I enjoy what
I’m doing, we’re creating something I think is making a difference, and it’s
mine.” "

It doesn't seem like he really left finance at all - in fact, it looks like he
probably hired some coders and had them build a product that he oversaw, then
sold it utilizing his experience and connections inside the financial
industry.

Are you really leaving finance for a tech job if all of your clients are in
finance?

Also, did he really risk his life savings on this? Seven figures for even just
a few years would set you up to launch a company and still retain some life
savings, it seems like.

~~~
antr
> Are you really leaving finance for a tech job if all of your clients are in
> finance?

I'd be concerned if these people left finance to create another photo sharing
app. If their contacts, network, and expertise are in finance, and they are
solving a problem this industry has, why not maximise their expertise?

Plenty of good startups are started by insiders (be it networking, energy,
healthcare, biotech, publishing, etc)

> Also, did he really risk his life savings on this?

Probably not, why should he? Wouldn't it be sensible to be frugal? Embrace the
lean startup approach? I'd rather take the Eric Rice approach to startups,
than that of Color Labs. Be lean, focus on solving a problem, great product,
and focus on sales.

~~~
rday
It sounds like this was an argument for a bad title on the article, not an
attack on the business or founder.

------
gadders
Short version: They had seven figure salaries before hand so could afford to
do it.

~~~
protomyth
Basically the story of most "unpaid internships", you have to have means to
get experience. Nice setup if you can afford it.

------
leroy_masochist
Two thoughts on this:

1\. From the headline, I was expecting this story to be about investment
bankers walking away from ~$300K total comp jobs to join early stage startups
that pay $85K salary plus equity. In fact, it's basically about finance people
doing what finance people have done for years -- realize that they could make
a bunch more money if they start their own firm. I am not sure that the fact
that the new firms they are starting are using technology in order to disrupt
longstanding paradigms is especially new or newsworthy.

2\. I do think that the development of AI has some interesting implications
for the business of investment banking. Specifically, I think that we are at
or close to a point where software solutions that do the blocking-and-tackling
tasks performed by a young analyst -- spreading comps, making profile pages
for all the dominant players in an industry, etc -- will make analysts
unnecessary. If I had to guess I'd say that in 10 years, the only reason there
will be analyst programs on Wall Street will be to teach bankers the theory
behind what is done in an instant by AI -- in the same way that student pilots
learn to navigate manually even though there's GPS.

------
carlmcqueen
I had to fight to get to the bottom of the article which felt like a 'I know a
few guys who...' article being used to define a trend.

All in all it felt like another 'someone who makes more than you took a risk'
being written because the risk can be turned into a marketing campaign for
their start up.

In the end it felt very light.

------
vonnik
The first thing you should know is that investment banks trap graduates in
some of the most boring jobs in the world. Spreadsheet jockeys and Power Point
monkeys. If you're smart, you last two years as an analyst and jump to an MBA
program where you will learn nothing but earn the right to be rehired one rung
up by another bank as an associate. If you can avoid the axe, and navigate the
politics, by working 14-16 hour days for several years you will finally be in
a position to boss a lot of people around for an institution that serves no
social purpose. So yeah, the bankers are jumping.

------
dignati
500,000 jobs in Software Development and Cybersecurity and 250,000 unemployed
bankers who are all keen to work in technology? That sounds like nightmare
material to me.

~~~
logfromblammo
Business Analyst: "Hey guys, remember how we invested all that effort into
replacing expensive workers with cheap computer programs to cut business
costs? It turns out that we're all _really_ expensive workers."

Bond Trader: "So who would be the last expensive workers to be replaced?"

Consumer Banking Executive: "Well, the ones writing the programs, obviously.
If they replaced themselves, their programs would finish replacing everyone
else practically overnight!"

Options Trader: "I move that we all become software professionals!"

Chorus: "SECOND!!"

B.A.: "Those in favor?"

Chorus: "AYE!!"

Quant (whispering into phone): "I want to short the _entire global economy_ ,
RIGHT NOW."

------
bko
Finance doesn't have the same allure to many as it used to have. It's
partially due to salaries being overshadowed by stories of start-up founders
but also the increased regulation and stifling of financial innovation.
Whatever you think about the benefits of new financial products, being on the
cutting edge of a new product like subprime mortgages or collateralized debt
structures would be exciting to some and attract a lot of A-players. The
profit potential was also there as groups getting in on the ground floor of
these products would be able to charge a large premium for creating such
products and specialize early on. That and financial transparency are reducing
the ability to leverage very specialized product/market knowledge to make a
large personal return (not to mention the threat of lawsuits).

Although the salaries are still high, I don't think most people working in
finance really believe they will become millionaires staying in the
conventional banking route. The idea held by many is that tech start-ups offer
more upside.

~~~
collyw
"financial innovation"

Yes that worked out well in the past. How some people believe that shuffling
money about will make more wealth is beyond me. (Queue all the apologist
remarks confusing the speed of things happening with actual wealth being
generated).

~~~
avz
> "financial innovation" Yes that worked out well in the past.

Actually, if you look beyond the recent crisis, oftentimes it did. Examples:
the invention of money (make O(nm) pricing problem into O(n+m) pricing
problem), invention of debt (temporarily transfer savings from a person with
excess money and no business idea to a person with no money and a good
business idea), etc.

> How some people believe that shuffling money about will make more wealth is
> beyond me.

Money can help produce new wealth, depending on how it is invested. If you
move it from a place where it is stashed and unused to a place where it buys
land, buildings and machines and creates jobs then the latter will create
wealth once the former will not. So yes, it is not inconceivable that
shuffling money around _may_ create wealth (when it actually does is a
different question).

During dotcom crisis I once heard a complaint about software engineers: "you
just sit there and move bits around". Well, it turns out some sequences of
bits actually create value.

~~~
sukilot
Your examples of innovation are over two thousand years old.

~~~
Adlai
Here's one that's barely turned six:

 _We have proposed a system for electronic transactions without relying on
trust._

[http://bitcoin.org/bitcoin.pdf](http://bitcoin.org/bitcoin.pdf)

~~~
NotableAlamode
Do you have any indication that Bitcoin came out of the world of finance? I
would venture that Bitcoin comes from cryptographers.

------
EGreg
First lawyers now bankers. I'm glad I went with what I liked in College!

------
puppetmaster3
My experience is that most of the finance majors start in engineering. And
switch majors to finance once they get to the engineering weeding out classes.

~~~
SpaceManNabs
That is interesting. At princeton, they do operations research and finance. It
can get pretty math intense, almost as hard as the physics department in some
cases. The engineering classes are easier compared to the ORFE classes, I
believe.

~~~
threepipeproblm
Yes but the engineers can build bridges that don't crash, whereas the finance
people who want to impress us with hard math brought us the derivative crash
and high-speed trading with the "flash crash" etc.

~~~
freehunter
Bridges certainly can and do fail.

~~~
hga
As the example I'm most familiar with, this bridge should not have failed:
[https://en.wikipedia.org/wiki/I-35W_Mississippi_River_bridge](https://en.wikipedia.org/wiki/I-35W_Mississippi_River_bridge)

The state of the art in the first half of the '60s was good enough to design
such a bridge correctly, but the gusset plates that connect girders together
were undersized.

Then there's the famous example of Boston's Hancock Tower, which was designed
and built per the current state of the art and code, but it turned out that
did not consider some important things that could have caused it to collapse
along its long, narrow side:
[http://www.pulitzer.org/archives/5826](http://www.pulitzer.org/archives/5826)

------
jgalt212
Another funny thing about the disappearance of all these finance jobs, is I'm
not sure they have really disappeared. After all, Bloomberg has the same
number of terminals installed now that they did in 2008.

