Venture Investment in WealthTech - Analysis: Jan/April 2022

Overview

Aside from the later stage financings for Acorn and Moneyfarm, and the continued scale up financing for Moneybox, and Cushon in the UK, most of the deals executed in the first 4 months of this year have been earlier stage financings. ?Given the volatility of the macro climate and the extremely poor performance of listed Fintech during this period, it is no surprise to see the volume of executed deals sharply down and the overall funding amounts also far below the levels that were prominent late last year.

In this analytic piece, I have created a different type of segmentation which I think providers readers with a better perspective on both mega trends as well as some of the underlying themes. I have additionally tried to segregate target audiences within each of the thematic areas too, so that users can understand the commercial approach a bit better. Finally, I have sought to recognize certain types of functional endeavors to better differentiate between companies that are in the same segment, but clearly trying to serve their audience in a slightly different way.

Theme 1: Crypto Investing

While there is still a robust debate in the broader market on the inherent investment value related to NFTs, and continuing volatility to be seen across a variety of altcoins, we are also increasingly seeing a growing number of WealthTech firms developing new investment platform designed solely around cryptocurrencies.?The emphasis of many is still strongly focused on simplifying access, custody, and trading to digital assets, but investment products are featuring more and more as passive solutions in their own right. ?This may be due to the continuing attraction of the “crypto interest levels” that are on offer, with some coins providing double digit and higher yields.

If we look at the deals that were executed, the size of the funding rounds remains impressive, even though the companies raising these numbers are no longer pure start-ups, but rather maturing businesses with clients, and infrastructure.?Among these, the one that caught my attention was Meetami. Meetami has been building its offering since 2019, aiming to enable advisors to fully support investment in crypto assets and portfolio services that heavily feature Crypto.?Their solution is not only providing advisors with these capabilities but also is supporting them with resources to educate, guide and teach clients.?While its funding level at 29,000,000 wasn’t the highest among the 7 deals in my table, it was the largest seed financing among wealthtech companies that were financed in the US.

Theme 2: Alternative Asset Market Access

In other blogs, I have commented about the re-allocation of institutional and high net worth funds to private equity and other alternatives in the past two years. It has of course been helped by the continued maturation of platforms like Icapital, Cais and Moonfare as intermediary solutions for access, but also has been generally helped by new democratization access approaches for both accredited as well as retail clients who want to invest smaller sums into alternative assets to diversify risk and increase their alpha opportunity.?The funding for Kristal.AI and the equity crowdfunding achieved by Global Wealth Group both demonstrate that there is a more scalable future possible for private banking type services where different wealth segments can acquire exposure to alternative assets through different vehicles, thus reducing the burden of accreditation in on-boarding and the associated costs and delays that need often be evidenced.

If one looks at the six deals that were financed since the start of the year, democratization was a pretty significant part of the investment thesis, as was the extension of the alternative asset landscape into both real estate as well as direct funding. This was underscored by the initial funding that was achieved in Gridline, as well as into Sweater. ??

The most interesting deal however was the funding for Tribevest which acquired seed funding to further scale its collaborative investing platform. ?This platform is targeting to serve groups of like-minded investors who would normally need to utilize accountants, administrators, and custodians to create, and manage an LLC investment vehicle to support their activities. Tribevest seems like it intends to build a full end to end platform to cut these intermediary service providers (and probably trust banks too) out of the equation through a hybrid self-service and light touch administrative effort made possible by the presence of api services.

Theme 3: Retail Wealth

In Asia/Pac, zero commission broking through mobile technology is still finding funding support even given the troubles that Robinhood, the pioneer of this particular genre has been having. However, the theme in the first 4 months been much stronger to launch and support the scaling of companies, particularly in the UK, that are focused on helping retail clients become longer term investors. ?Different approaches are being backed to achieve this with new players supplementing investment automation with solutions that assist investors with creating more personalized (wealthyhood) portfolios, and impact investing outcomes (Eko).

Learning and Guidance are also becoming much more prominent features of platform design, particularly for those that are aiming to interact with younger and less experienced investors.?These platforms offer an educational and learning led approach to address the advice gap, and are often positioned, such as in the case of Picturewealth, as wellness solutions or in other cases, as solutions that bring the savings and investment process closer together within an autopilot setting. ?Guidance is also being packaged into digitized forms and workflow processes so that even more complex areas such as estate planning are now becoming accessible as on-line services.

Theme 4: ?B2B and Wealth Platforms

There is continuing funding momentum toward enterprises that want to help advice firms run more efficient and productive practices. The introduction of recommendation tools that utilize machine learning are continuing to evolve. ?These platforms want to make it easier for advisors to recognize opportunities as well as optimize the investment management process. Some of those getting funded, esp. in the US have a regulatory model in place that is designed to enable enterprises to acquire transactional and advisory capabilities through an outsourcing model. In this guise, the most intriguing to watch is a company called Summit Systems that looks to have some of the same ambitions as FNZ and has raised the largest Series A in this sector.

Theme 5: Retirement Solutions

While the funding numbers themselves, outside of a major scale up investment in Cushon, may not have caught much attention, retirement planning and new scheme designs continue to be of gaining venture attention. Income shortfall risk in the late stages of retirement continues to be a commonly recognized problem, and thus one is seeing a range of solutions, ranging from better retirement planning tools for advisors to lower cost pension scheme options coming into the market.??This is particularly being targeted at SME employers who are facing increasing scrutiny about the quality and value for money in their pension scheme designs.?While it received only a small amount of funding, the initiative that caught my attention in this segment was launched NextMile, launched in Finland. ?Their platform designs is a direct response to the longer and healthier lives that we are living and is squarely aimed at combatting the negative impact of ageism bias against people in their 60-70’s that want to continue to contribute through work toward their retirement income and society as a whole.

Conclusion

Digitization in WealthTech remains heavily focus on developing solutions that broaden wealth access and encourage more participation in a broader way to wealth accumulation. ?Innovators are keen to make as many asset classes accessible to retail wealth investors as possible, and to offer various platform designs for individuals and enterprises to use to deploy capital in an efficient, low cost, and optimal way. This is achieved through both simplicity as well as streamlining both on-boarding and administrative tasks. There is still more funding emphasis on educating and introducing automated savings/investments solutions to earlier stage wealth builders, but there is also a growing cohort of venture firms who are focused on retirement, and the need for both better planning as well as better scheme designs.?These investors are prepared to back ventures that want to achieve this both through the workplace, as well as outside of it.?Finally, while there has been some cooling in the funding landscape as it relates to purely creating easier access to crypto currencies, there remains a strong belief, esp. stateside that crypto investing, esp. for the high-net-worth market is moving toward a more mainstream position, and thus needs the right type of investment solutions across model portfolios, income generation, and custody management to accommodate its inclusion.