Recent news makes it seem that, in finance, growth and compliance are mutually exclusive. From PayPal’s millions of fake accounts to Terra’s stablecoin mirage, growth seems both elusive and a cause for suspicion.

But Federico Baradello, Founder and CEO of Finalis, strongly believes otherwise—and the growth of his startup proves his point. “What you really need to do is find ways to thread the needle, to actually elevate the standard of compliance,” he told The Financial Revolutionist.

In an interview with The FR, Baradello dives into the mission and origins of Finalis, outlines how compliance can be a strategy for growth, and encourages other entrepreneurs to find “unsexy” but promising niches to disrupt. “We see ourselves as a more market-driven cure to raise the standard that this industry has seen,” he concludes.

This interview has been edited for length and clarity.

The Financial Revolutionist: How would you describe Finalis, and how did you go about starting the company?

Federico Baradello: I'm a recovering Kirkland and Ellis deal lawyer, and I spent a number of years in our San Francisco office doing middle-market technology company buyouts for private equity funds like Vista, Silver Lake, and others. And I realized that there was an irony in executing all of these really cool tech company buyouts, but leveraging a 30-year-old technology stack to actually execute on those deals.

It's always been a bit of a mystery to me that venture dollars in capital markets have tended to chase relatively small asset classes, while you have this multi-trillion-dollar-a-year space of bread-and-butter M&A transactions and private placements that continues to flow through a really legacy workflow. There are process emails, trackers built in Excel and Word, old-school and clunky virtual data rooms. And so that, for me, culminated in an obsession around how digital transformation can be brought to bear in private market deal execution, which is a booming asset class.

We saw that there was a real opportunity to deliver infrastructure rails for the long tail securities broker, because the regulatory framework has really been built for large banks, not so much for small banks. And since we launched the concept in May of 2020, we have become the fastest-growing independent broker-dealer in the United States operating in this space. We now support close to 140 investment banks and placement agencies across the country.

We deliver a regulatory affiliation—so basically a place where they can affiliate their FINRA licenses. We also offer a technology-enabled compliance organization, which checks the boxes for them and manages their compliance picture. And we wrap that whole experience with software, which is effectively a back-office hub environment that the broker can leverage in order to do more than compliance, but also launch their own deal rooms, as well as solicit and to opt into collaboration opportunities on deals, which starts to move our focus in the direction of becoming more of a marketplace of record for brokered private-market securities.

You can think of us as a Zillow-meets-Compass but for the investment banking space, and tailor-made to coalesce the lion's share of long tail brokers onto the Finalis platform.

So the private-market deal execution space grew—but why didn’t the tech catch up?

There are many different stakeholders involved in a private-market deal: It's not just the issuer and the investor or acquirer, but it's also the bankers, the lawyers, the management consultants, and they each have different incentives. One of the things that we realized when we were developing our go-to-market strategy is that, just like any B2B software solution, you need to be relevant from the moment of inception of a process, particularly if that inception is multistakeholder. We realized that we needed to be relevant from day zero of the transaction, or the potential transaction—and the potential deal is born within the bank.

And what we realized was if the penetration path was through the bank, then we needed to determine the high-velocity journey in the bank. We took a step back and saw investment banking as an abstraction—as really just being another type of brokerage vertical, such as real estate and insurance. And when we studied those brokerage verticals, we saw that the most successful tech plays into those brokerage verticals weren't traditional SaaS companies that were selling productivity suites, but actually infrastructure-as-a-service companies. We identified a tremendous opportunity to bring an adapted version of that strategy into the investment banking space.

How did you bake the needs of those various stakeholders into a single product? And how do you balance that priority with the regulatory landscape governing your entire pipeline?

I'm a lawyer, so I spent a lot of time thinking about how we were going to set up this framework in a way that could scale but that wasn't going to burn our regulatory licenses in the process. We have spent quite a bit of time exercising a proactive approach in dialogue with FINRA. But then the other aspect of it is just understanding what that initial product wedge needed to be.

And we love the compliance wedge, because compliance, unlike a deal, is relevant 365 days out of the year. That presents to us a really important predicate into the other components and capabilities that we want to build on top of that, because we've managed to make Finalis a tab that you keep open on your browser every single day of the year.

So regtech can be this gateway into a whole other suite of needs being met—and generating some sort of stickiness. Where do you go from there? Do you offer a different suite of products, or do you offer a similar product to different sectors?

There's a huge market in lower-middle market brokerages, so we're very busy monetizing this specific opportunity, which seems like a niche, but I always call it a massive niche. There are thousands of long tail brokers across just the United States, and we're building infrastructure to appeal to long tail brokers globally as well. And the basic value proposition to the long tail broker is that Finalis wants to be able to deliver the type of leverage value that they otherwise would enjoy at a place like Credit Suisse or Goldman Sachs, which turns the model on its head, making a more broker-centric model that delivers more empowerment and autonomy back to the individual broker.

It’s the direction that the market is evolving into, with lots of activity not just flowing through traditional brick-and mortar-brokerages, but now increasingly through fintech platforms.

You use compliance as the node to connect more traditional businesses that maybe wouldn't want to engage with you otherwise. It seems you offer a lesson that growth and compliance can coexist at the same time.

Over time, as we earn that trust as a tech-enabled back office, we're seeing greater adoption of tools like our virtual data room that extend our reach into the front office. We see ourselves as driving a big cleanup effort for the compliance back office in the lower-middle market, because our competitors are not software companies: They’re consultancies, individual compliance officers, and FinOps that haven’t scaled their operations, and, generally speaking, have historically not necessarily always done things the right way. So we're bringing in a lot of talent at the very top levels, and building systems to scale that know-how, and delivering that value on a licensed basis back to the broker.

Speaking of team-building, what kinds of backgrounds do Finalis’s leaders come from, and what qualifies them to make your mission succeed?

It's a motley crew, but it had to be. Beyond myself, it’s Brad Ziemba, Chief Compliance Officer, who has 30 years of experience in the compliance space. He was CCO at places like Duncan-Williams and Cabrera and other broker-dealers and investment banking operations. Alex Sueldo, who just joined us from Simpson Thacher, is our Chief Operating Officer and General Counsel. Guido Barosio is our Chief Technology Officer, and he was in charge of Groupon’s technology platform in Latin America. And a number of other people that make this whole thing hum.

We have people from disparate backgrounds coming together to tease out solutions here, because you really need compliance officers sitting next to lawyers, investment bankers, engineers, and product people to really make this whole thing work.

Beyond internal stakeholders, who else has helped Finalis reach this point?

We've had a number of investors who have been very involved in enabling our success. The last money in was led by Tribe Capital. Arjun Sethi at Tribe, along with many other backers, have been instrumental in helping us to not just capitalize the business, but they’ve helped on the talent side as well. And then we've also put together advisors, including people like Susan Schroeder, who is the former Head of Enforcement at FINRA, who have been really instrumental in helping us to foster great relationships with the regulator and help us to identify risks and opportunities.

Are there any other takeaways you’d like to share with The FR?

The zeitgeist in fintech seems to be around retail. I do think that the next wave that's going to crest is innovation in commercial and investment banking. We're working on some really interesting problems in a multi-trillion-dollar asset class that passes through relatively few hands. It's an obvious market from a dollars perspective, but it's not an obvious market from a number of industry stakeholders perspective, because it’s only thousands of bankers and lawyers, not millions or billions of immediate potential users. Certain spaces tend to balloon, and people don’t necessarily chase the unsexy but still really large opportunities out there. And I think we're a very good example of that strategy being a success.