Story of Upside AI: Tech-driven Asset Management Company

Jeenal Jain Jeenal Jain
Aug 26, 2021 12 min read
Story of Upside AI: Tech-driven Asset Management Company

Company Profile is an initiative by StartupTalky to publish verified information on different startups and organizations. The content in this post has been approved by Upside AI.

Upside AI is a SEBI-registered PMS (Portfolio Management Service). Founded by Kanika Agarrwal, Nikhil Hooda and Atanuu Agarrwal, Upside AI creating a new class of investing that sit between active and passive โ€“ its goal is to deliver consistent alpha through eliminating bias/emotions from the process.

Today, Upside AI ranks among the top-performing PMSโ€™ in the country delivering 33% annualized returns since it came out of beta in Jul 2019. family offices. asset management is a highly fragmented market and is not a winner-take-all play. Even at a sub-1% market share, Upside AI can scale to ~$5B in AUM while delivering a robust return on capital.

Startuptalky interviewed the Founders of Upside AI to get insights on the startup story and the roadmap of the organization. In this article, you'll get to know all about Upside AI's history, how it launched, its future plans, competitors, funding details, growth, and more.

Upside AI - Company Highlights

Startup Name Upside AI
Co-Founders Kanika Agarrwal, Nikhil Hooda, Atanuu Agarrwal
Founded 2017
Headquarters Mumbai
Industry Fintech
Website upsideai.com

Upside AI - About and Vision
Upside AI - Market/Industry Details
Journey of Upside AI - How is Started
How Upside AI works - Product and USP
Upside AI - Founders and Team
Upside AI - Business Model
Growth of Upside AI
Upside AI - Funding and Investors
Upside AI - Competitors
Upside AI - Recognition and Achievements
Upside AI - Future Plans
Upside AI - FAQs

Upside AI - About and Vision

Upside AI is a SEBI-registered PMS (Portfolio Management Service). It is essentially an investment management startup that uses technology to drive investment decisions. Nikhil Hooda, Kanika Agarrwal, and Atanuu Agarrwal started Upside AI with the belief that technology will make better decisions than humans over the long term since machines are unbiased and unemotional decision-makers. It is therefore focused on building products that follow a rules-based, systematic approach to investing.

Upside AIโ€™s first two products focus on equity investing using proprietary machine learning algorithms to understand, recognize, and buy companies that are fundamentally good businesses. It provides Portfolio Management Services or PMS, which caters to HNIโ€™s, institutions, and family offices in India and globally. The minimum investment size is INR 50 lakhs.

Upside AI logo

The team wants Upside AI to be a world-class 100% tech-driven asset management company (AMC). They aim to achieve this by building an array of products across asset classes and strategies. Apart from the two live products, Upside AI has another couple of products in development, which it plans to launch over the next 6-12 months (2021-2022). Over the next couple of years, the company aims to add 1,000 HNIs, family offices, and institutional clients and grow to INR ~1,000cr in AUM.

"We are also working on building an end-to-end digital platform where we want tech to drive the entire chain from client onboarding to sophisticated investment tech to live tracking and reporting via a seamless UI/UX experience for clients" ย as said by the Founders of Upside AI.

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Upside AI - Market/Industry Details

The asset management market in India today is INR 52 trillion (as of December 2020). Retail mutual fund penetration in India is very low (~6% of GDP vs. ~36% in other emerging markets and ~60-70% in developed markets.) Hence, it has been growing at ~25-30% over the last 5 years; the team @ Upside AI expect this momentum to continue.

Over the last decade, tech has disrupted several areas of financial services like payments, lending, insurance, etc. However, asset management has stayed the same in India i.e., human investors taking calls and large armies of sales/ back-end staff running distribution and operations.

Over the next 5 years, Upside AI aims to create off-the-shelf, standardized products across asset classes that can be pre-packaged and sold to even retail investors. Distribution will be built online with end-to-end integrations with brokerages and bank accounts. The back-end ops and reporting that the team is building are already online and extremely scalable.

By its nature, asset management is a highly fragmented market and is not a winner-take-all play. Even at a sub-1% market share, Upside AI can scale to ~$5B in AUM while delivering a robust return on capital (even traditional players with large physical networks today have 30%+ ROEs) by leveraging digital distribution and algo-based systematic investment.
(Source: AMFI, McKinseyโ€™s Asset management database)

Journey of Upside AI - How is Started

Spark of Idea: Upside AI

"Graham is my guru in every sense of the word. I had no background in finance or investing when I picked up โ€œThe Intelligent Investorโ€ almost 15 years ago. It led me to Grahamโ€™s other seminal work โ€œSecurity Analysisโ€, meant for professional investors. They are the inspiration and spark behind the idea for Upside AI. They led me to the framework for our core algorithm" - Atanuu Agarrwal (Co-founder, Upside AI) added.

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The Launch of Upside AI:

It took nearly a year to build out the tech, including -

  1. cleaning up ~20 years of financial data
  2. Unbiased and robust back-testing, and
  3. Frameworks for qualitative issues like corporate governance

In addition, the team conducted primary research by talking to CIOs and decision-makers at:

  1. The largest fund houses in the country
  2. Largest wealth managers in India
  3. 20-25 of the largest family offices in India
  4. 100+ retail investors

It took nearly a year to build out the tech and back-test it; then another year to test it in the live market, before it took out of beta and started offering to third-party distributors and clients in July 2019.

Challenges Faced by Upside AI:

One of the major challenges that the team faced was that they were pitted against established players in an industry built on trust. Adding to that was the fact that Upside AI was perceived as an outsider since the team came from a background in venture capital and technology. Building a network of investors and distributors virtually from scratch remains one of its biggest challenges even today.

Additionally, convincing people to put their trust and money into a newly introduced tech-based product was a mammoth task. However, the company's aim since day one has been to make investors realize that one must diversify away from human-led investing. Over the due course, on the back of consistent performance and sustained alpha, clients, wealth managers, and distributors associated with Upside AI have come to appreciate that tech-based products should be an integral part of oneโ€™s asset allocation strategy.


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How Upside AI works - Product and USP

The current state of play in the Indian AMC industry is that -

  • Human managers are struggling with outperformance
  • Fees in the industry are shrinking where a human heavy cost base means low ROE, and
  • There is an ongoing system redesign on how asset allocation will change over the next decade.

Already, technology/rules run 60% of the markets in the US. With ETFs overtaking active investing in the last few years, developed markets are moving away from the traditional human-driven investing models (which tend to be driven by irrational emotions/ biases).

This will be the future for India and other developing countries โ€“ that users will increasingly look for an unbiased rules-based approach to equities and tech will drive much of asset management.

At Upside AI, the team is creating a new class of investing that sits between active and passive โ€“ its goal is to deliver consistent alpha through eliminating bias/emotions from the process.

Upside AIโ€™s first few products focus on equity investing using proprietary machine learning algorithms to understand, recognize, and buy companies that are fundamentally good businesses. ย 

  1. The first step is parsing of P&L, balance sheet, and cash flow data of all companies listed on the NSE. This was a non-trivial exercise, as meticulous data clean-up and standardization. ย 
  2. The secret sauce is however the next step where the algorithm uses ML to shortlist companies that are not just fundamentally good businesses but also in-demand stocks.
  3. It does this exercise quarterly, to pick a portfolio of 10-25 stocks. It has also developed a framework for corporate governance checks to make sure the numbers fed into the algorithm are kosher.

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Upside AI - Founders and Team

Nikhil Hooda, Kanika Agarrwal, and Atanuu Agarrwal are the founders of Upside AI.

Upside AI Team
Nikhil Hooda, Kanika Agarrwal, and Atanuu Agarrwal - Upside AI Founders

How the Co-founders Met:

Nikhil and Atanuu were batchmates from IIT Bombay and in fact, have been friends since even before that when they started preparing for IIT JEE together. Kanika and Atanuu crossed paths while working in the investment banking team at Credit Suisse.

"All three of us love playing strategy board games and that is what led to a deep friendship and then eventually the partnership. So much so that Kanika and I are married and Nikhil was the witness on our marriage certificate. We are a very close-knit group and share not only the same set of interests but also common values which is ideal if you are starting a business together." - Atanuu Agarrwal added.

Atanuu Agarrwal | Co-founder, Upside AI

Since Atanuu is the in-house Ben Graham disciple and pretty much spends most of his time on the investment and product side of the business. he has a B.Tech and M.Tech from IIT Bombay. He has experience in both public and private investing in the US and India. Atanuu spent the last 7 years prior to Upside AI working in New York with the CEO/Founder managing $1bn in AUM across PE, VC, and SPAC strategies.

Kanika Agarrwal | Co-founder, Upside AI

Kanika focuses most of her energies on sales and distribution. She is a Chartered Accountant (All India Rank 18), a CFA charter holder by qualification. She previously worked at Mayfield India for a brief time, Credit Suisse, and EY for nearly a decade before starting Upside AI.

Nikhil Hooda | Co-founder, Upside AI

Nikhil is the brains behind the technology at Upside AI. He has a B.Tech in Computer Science from IIT Bombay (All India Rank 43) and a PhD in Computer Science. Every single line of code has been written by Nikhil and there has been no outsourcing or licensing when it comes to actually building the product.

Upside AI - Business Model

The business model in asset management is โ€œsolvedโ€. Clients are charged a percentage of AUM periodically.

Growth of Upside AI

Currently, Upside AI has ~80 customers and about INR 85cr in AUM. Its goal is to cross 1000 customers and 1000 crores in AUM within the next 18-24 months (2022-23) while delivering consistent returns for its investors.

As mentioned earlier, Upside AI ranks among the top-performing PMSโ€™ in the country delivering 33% annualized returns since it came out of beta in Jul 2019. The company recently raised a seed round of $1.2 Million, led by a VC fund, Endiya Partners. It has already attracted marquee clients ranging from large family offices, VCs, CEOs of large MNCs in India and the US on the back of unique investment tech that the team has built in-house and extensively tested. The funding will help Upside AI build a robust pipeline of differentiated tech products and a network of large distributors, wealth managers, brokers, and IFAs.

"I believe that a product-focused and client-centric approach can help us achieve our vision of being a world-class, tech-driven asset management company that will democratize access to sophisticated investment technology, built for Indian investors" Atanuu Agarrwal added.

Upside AI - Funding and Investors

Upside AI recently raised a seed round of $1.2 Million, led by a VC fund, Endiya Partners. Other investors in the round include - Vijay Kedia (a veteran stock market investor), Ajay Nanavati (Chairman of Quantum Advisors, previously Chairman of Syndicate Bank, MD of 3M), and Gopichand Katragadda (CEO of Myelin Foundry, ex-CTO of Tata Group).

Date Stage Amount Investors
June 21, 2021 Seed $1.2 Mn Endiya Partners, Vijay Kedia, Ajay Nanavati, Gopichand Katragadda

The team @ Upside AI believes that the funding and guidance from Endiya and their esteemed angel investors will propel Upside AI towards the milestone to cross 1000 customers and 1000 crores in AUM within the next 18-24 months (2022-23) while delivering consistent returns for its investors.


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Upside AI - Competitors

Current competitors for Upside AI include:

  1. Traditional Asset Management Companies (AMCs), and
  2. Boutique investment firms run by human fund managers.

There are companies building digital distribution like Paytm, Smallcase, and Groww, etc. Upside AI would leverage these pipes to distribute its products. However, they might become competitors in the future if they backward integrate into asset management.

Having said that, asset management is not a winner-take-all market and there is space for multiple large players to exist.

"In addition, as far as we know, we are amongst only a handful of players leveraging tech for investment decision-making in India. Our proprietary tech and track record are sustainable moats, which should hold us in good stead vis-ร -vis the competition" says Atanuu Agarrwal, Co-founder, Upside AI

Upside AI - Recognition and Achievements

Upside AI ranks among the top-performing PMSโ€™ in the country delivering 33% annualized returns since it came out of beta in July 2019; this represents a ~14% alpha (outperformance) over the benchmark index (Nifty 500 TRI).

In June 2021, PMS AIF World ranked Upside AI Multicap in the top 10 products of its peer group. Upside AIโ€™s AUM has grown by 10X since 2020 to over INR 75cr with investments from several HNIs, and family offices.


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Upside AI - Future Plans

  • Its goal is to cross 1000 customers and 1000 crores in AUM within the next 18-24 months (2022-23) while delivering consistent returns for its investors
  • Apart from the two live products, Upside AI has another couple of products in development, which it plans to launch over the next 6-12 months(2021-2022)
  • Over the next couple of years, the company aims to add 1,000 HNIs, family offices, and institutional clients and grow to INR ~1,000cr in AUM.
  • The team is also working on building an end-to-end digital platform where we want tech to drive the entire chain from client onboarding to sophisticated investment tech to live tracking and reporting via a seamless UI/UX experience for clients
  • Over the next 5 years, Upside AI aims to create off-the-shelf, standardized products across asset classes that can be pre-packaged and sold to even retail investors

Upside AI - FAQs

What is Upside AI?

Upside AI is a SEBI-registered PMS (Portfolio Management Service). It is an investment management startup that uses technology to drive investment decisions.

Who are the founders of Upside AI?

Nikhil Hooda, Kanika Agarrwal, and Atanuu Agarrwal started Upside AI in 2017.

How does Upside AI make money?

Clients are charged a percentage of AUM periodically.

What is the USP of Upside AI?

At Upside AI, the team is creating a new class of investing that sits between active and passive โ€“ its goal is to deliver consistent alpha through eliminating bias/emotions from the process. Upside AIโ€™s first few products focus on equity investing using proprietary machine learning algorithms to understand, recognize, and buy companies that are fundamentally good businesses.

Is Upside AI an Indian Company?

Yes. Upside AI is an Indian Company headquartered in Mumbai.

How much funding has Upside AI raised?

Upside AI raised a seed round of $1.2 Million, led by a VC fund, Endiya Partners. Other investors in the round include - Vijay Kedia, Ajay Nanavati, and Gopichand Katragadda.

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