Retail investors entered the stock market in droves over the past couple of years. Much ink has already been spilled analyzing competition between fintech companies such as Robinhood and Public.com to capture these new customers. But there's another implication of this trend that's less obvious: These new investors also have the power to introduce and vote on shareholder proposals that can shape the trajectories of publicly traded companies.
It's a classic David-and-Goliath battle, though, as retail investors typically don't stand a chance in organizing around their interests when they are going up against the behemoth fund managers that tend to hold the majority of shares in large, public companies through indexes.
Troop, a New York-based startup, is optimistic that the balance of power can shift.
Troop co-founders Seb Jarquin, Felix Tabary and Zen Yui. Image Credits: Troop
The company just announced it raised a $4.3 million seed round co-led by Northzone and BlockTower Capital for what it calls a "collective bargaining platform for everyday investors." The raise brings its total funding to $6.1 million to date ahead of its private beta launch slated for later this month, co-founder and CEO Felix Tabary told TechCrunch in an interview.
Tabary started his career as a salesperson at Bloomberg, where he covered activist hedge fund clients. That experience opened his eyes to how shareholder advocacy can enact change at large companies, he said.
The first time he thought to bring those tactics to retail investors through a new tech platform occurred years later in 2021 after small activist firm Engine No. 1 mobilized some of ExxonMobil's largest shareholders to fill two of the company's board seats with directors who were more conscious of climate risks.
"Despite only owning a tiny bit of that company, they were able to wrangle together a really interesting coalition to push the company in the direction of sustainability for environmental and economic reasons," Tabary said. "Motivated by seeing what was possible on the institutional level, and inspired by what happened in the GameStop story, we figured, what can we do to combine these?"
The ExxonMobil campaign was a watershed moment for socially-conscious activist investors. This year, the number of ESG (environmental, social and governance) proposals filed by shareholders at S&P 500 and Russell 3000 companies has surged.
It's quite uncommon today for retail investors to actually vote on proposals, though. Tabary and his co-founders, Seb Jarquin and Zen Yui, along with their 15 employees, are betting that building a stronger community of investors can lead to a more robust flow of information and therefore encourage a higher level of retail investor engagement.
Troop's shareholder engagement app. Image Credits: Troop
Troop's platform seeks to take advantage of this trend by providing a home for retail investors to interact with one another where they can remain anonymous, but their shares are still verified on the platform, Tabary explained. Once users connect their brokerage accounts to the Troop app and become verified, they can connect with an "influential community of verified shareholders" to vote collectively on polls and campaigns that could eventually translate into formal shareholder proposals.
"If you look at the landscape today, there really aren't that many practical ways to align your finances, your personal wealth, your portfolio, your 401(k), you name it, with, strictly speaking, your values, in a productive, impactful, measurable way. [Shareholder voting], I think, is a really concrete lever to try and hold companies to the best and highest possible standards," Tabary said.
While the tech is still in the early stages, Tabary said Troop's plan is to monetize through B2B revenue by selling its platform to professional activist investors.
"Professional activist investors are doing more and more activism, but they're taking smaller and smaller stakes in the companies that they're targeting, which means they need to build broader support from a larger number of people," he said.
There are some prominent firms such as ISS and Glass Lewis that provide proxy voting advisory services to institutions but haven't historically focused on retail investors, Tabary explained. Publicly traded fintech Broadridge, he added, is another player that does have a consumer-facing platform to aggregate proxy votes but in Tabary's view, the company is constrained by highly specific rules that limit its ability to incentivize shareholders to actually vote. As a young upstart, Troop may have more latitude to experiment with different strategies to get retail investors on board.
Ultimately, retail investors could end up making a decisive difference in important proxy votes, according to Tabary, which is why Troop is so focused on bringing them into the conversation.
"The bulk of shareholder activism happens six to nine months ahead of the annual shareholder meeting, and it starts with small, incremental coalition-building. What we're trying to do is very consciously build out the retail portion of that coalition that typically tends to only be involved at the very end to make up the 5-6% difference in vote swings," Tabary said.