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The European fund market handles €22.9 trillion in assets but runs largely on outdated systems, according to industry association EFAMA.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.