WealthTech

‘The easiest way to make money? Manage other people’s money‘ — might be true, but that doesn’t mean the WealthTech industry’s road ahead will be smooth.

 
Covid-19, as I’m sure you’re tired of reading, has accelerated the digitalizations of the world. In recent editions, we covered how Legal and Construction, two notoriously ‘old-fashioned’ industries, have been part of this digitalization. But there’s a third such industry going through a transformation: The Wealth Management industry.

But unlike Legal and Construction, the Wealth Management industry was already approaching an inflection point: with the rise of crypto, the remote economy, the creator economy, rising inflation across the world, and ever-expanding access to information — consumer (individuals, in particular) views on wealth management and investing were already changing; No more were only the top 1% interested in maintaining and growing their wealth. Covid-19 (and lockdowns) was just the final push the industry needed: it gave remote workers surplus income (no night-outs and the like) and forced those unlucky workers either laid off or furloughed to better manage their financial needs and think of their financial future.

And so arose a cohort of startups which we now call WealthTech.

 
WealthTech

WealthTech, put simply, is a term used to describe all technology-powered companies working on any aspect of the Wealth Management or Financial Advising industry, with services ranging from automated investments to simplifying legacy operations, or reducing information asymmetries between individuals and legacy investors.

While most of us are familiar with American WealthTech giants such as Robinhood (which was at the center of the r/wallstreetbets case, and recently went public) — few of these US players have successfully tapped into the European market, deterred mainly by the regulatory complexity of Europe, and the fact that the US itself is a big enough market to tackle (Robinhood scraped their plans to enter the UK just a few months ago). This, according to a Sifted report, ‘cocooned [European WealthTech] from US competition’ and allowed them to proliferate.

Some of this European companies are simple copycats of their American counterparts, but not all. In fact, a whole flurry of European WealthTech startups have appeared over the last few years, all working to solve different problems in the finance space. Broadly speaking, WealthTech services come in 4 different categories:

Robo-adivsors & digital asset managers, which automate financial investments and help individuals develop profitable investment portfolios through machine-learning algorithms, or a combination of ML and human input. Key European players in this space include:

Digital Brokers: Robinhood would fall into this category. Digital Brokers ‘democratize’ access to investment by providing individuals an easy, user-friendly way to trade, usually paired with a social-media element. The biggest European company in this space is eToro, which recently SPAC IPO’d and is now available in 140 countries. Other key European players in this space include:

WealthTech as a Service: a subset of the Embedded FinTech space, these companies enable Enterprises to offer WealthTech services (like the two mentioned above) to their users/clients. Key European players in this space include:

Investment Tools: the broader umbrella encapsulating all other forms of WealthTech services, such as portfolio management solutions for financial advisors, or tools that provide additional information to investors (such as research tools). Key European players in this space include:

Note: you might notice the overall lack of DeFi & block-chain enabled or related brokers in this edition. The reason why I am not including them is because the DeFi subject is too big to try and tackle here and, in fact, I’ve already written about it in an earlier edition. I’ll probably do an updated DeFi edition soon, so much has changed since, after all…

 
Investors’ Appetite

There’s an old saying, often repeated within offices in Wall St. that goes something like: “The easiest way to make money? Manage other people’s money.” That rings true to me. But up until recently, only banks and financial services firms could embody that saying, and ripe its rewards. But now that technology has allowed for this new kind of Wealth Management companies, the playing field has opened — so it’s no surprise VC and Angel investors are flooding to the space.

Global WealthTech investment has been, since 2017, on an exponential trajectory, with companies raising:

  • In 2017:$6 billion across 299 rounds
  • In 2018:$7.8 billion across 309 rounds
  • In 2019:$7.9 billion across 375 rounds
  • In 2020:$9.2 billion across 435 rounds

And by the first half of 2021 — already WealthTech startups had raised $13.7 billion, with deals above $50 million fuelling this growth and pointing at a strong Covid-19 recovery.

In Europe, particularly, WealthTech investment too has had quite a few years. Though there was quite a dip in 2020 (€0.9 Billion) compared to 2019 (€1.4 Billion), what goes of 2021 has already surpassed the previous year’s mark, by quite a bit. As of October of 2021, European WealthTech startups have raised around €3 Billion, around 30% of the total money raised by European Fintech startups.

Perhaps the most notable fundraise from this total pool was Germany-based Trade Republic’s $750 million round, which was led by Sequoia and put the company’s valuation at $5.3 billion, well past the unicorn-status.

But Sequoia isn’t the only big-name fund betting big on European WealthTech. Other investors include:

 

Funds

Angels

  • Jim Mellon (invested in Netwealth)
  • Michael Spencer (invested in Netwealth)
  • John Weiss (invested in Netwealth)
  • Henrik Kraft (invested in Moonfare)
  • Eli Barkat (invested in eToro)
  • Yaron Adler (invested in eToro)
  • Yuval Rechavi (invested in eToro)

 
Challenges

‘The easiest way to make money? Manage other people’s money‘ — might be true, but that doesn’t mean the WealthTech industry’s road ahead will be smooth.

First there’s the issue of Unit Economics: opening up financial advising and wealth management to the average person means the average ‘ticket’ invested (whether through digital brokers or put into a robo-advisor) is not $10 million, not even $1 million as is usually the case with ‘traditional’ wealth management firms, but much much lower. This, in turn, means WealthTech startups need to go broad and attract as many users as possible, offering more and more ‘incentives’ such as 0% commission on earning or no-fee trading, creating either a race to the bottom, or a monopolistic result.

Second, there’s the issue of regulation: For when it comes to other people’s money, security and safety matter. And where there are security and safety concerns, there’s regulation. This, though a challenge in itself, might be the very thing that avoids the ‘monopolistic result’ I just mentioned: there’s currently no EU-wide regulatory framework for WealthTech startups, which means each and every WealthTech company needs to navigate the regulatory frameworks of each and every European country they want to operate in, and brace themselves for any unexpected changes therein.

And then there’s a third challenge (or a prediction, if you prefer): there’s a world not so far ahead in the future in which fiat currency-based financial instruments are simply rendered… irrelevant. (Yes, I am talking about DeFi). And in this future, all the WealthTech companies I describe would also become irrelevant — unless they adapt. But that, as they say, is a story for another day…

 
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MONEY STUFF

​Italian capital provider Viceversa closes €23 million seed round

Nauta Capital calls it on its fifth fund, closes at €190 million

Permutive raises $75 million in SoftBank led round

London’s Breakroom breaks it down, rakes in $7 million in seed funding

Culture as a Service startup Unlock unlocks $2 million in seed round

Fund of Funds Multiple Capital closes €20 million raise, officially welcome Michael Jackson as Venture Partner

Dutch deep tech firm Autofill raises €2.6 million

Saving tropical hardwoods one tree at a time, Norway’s Kebony raises €30 million

Swedish-born food tech N!CK’S scoops up $100 million

Belgian marketing tech startup DESelect raises $5.5 million, rustles up plans for Austin office

Decentralised app making tool ​​Moralis raises $13.4 million via EQT Ventures

Ukrainian-American image processing startup Let’s Enhance raises $3 million

Consumer research platform Attest raises $60 million

London-based factoring startup Storfund closes £300 million deal

B2B payments provider Nook raises $1.1 million, aims to rid the industry of PDFs

Urbyo aims to bring GenZ and Millenials into the real-estate game, raises $5 million

Swiss AI-powered spend management platform Yokoy raises $26 million

Earth-friendly search engine Ecosia launches €350 million World Fund

With a new €120 million Space Fund, Orbital Ventures loves startups to the moon and back

 
Πηγή: Gonz Sanchez

seedtable.com

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