ROBO ADVISOR: SEC Fines Betterment $400k, while SigFig & SmartAsset Raise $50mm and $28mm

Growth is expensive and risky. The brightest example is Facebook, with its now outdated mantra -- move fast and break things. Facebook did move extremely fast, and it may have broken some fundamentals, like the concept of privacy for an entire generation, as well as functioning democracy. But we digress. Even in Fintech, companies like Zenefits (and SoFi, culturally) have run into walls by taking shortcuts encouraged by growth. From that perspective, we are not shocked to see a $400,000 fine levied on leading roboadvisor Betterment for accounting practices between 2012 and 2015. This amount is half of the Zenefits fine (about $1 million) for unlicensed insurance brokerage,  and far less than the millions in wire fraud penalties associated with Theranos. But it does throw a wrench into the roboadvisor growth engine. 

From an investor's perspective, however, legal and regulatory exposure is just risk. And roboadvisor assets are still attractive. As proof points, SigFig has just raised a $50 million check from growth equity firm General Atlantic, with participation from prior investors like USV, Bain, and UBS. Remember, SigFig powers the UBS roboadvisor. In order for a company to raise growth equity capital, it likely needs to be running at $10-50 million in revenue, which means that the Wall Street contracts that SigFig has signed are probably quite juicy. 

As another example, consumer finance website SmartAsset raised $28 million from Focus Financial and Citi Ventures, among others. Unlike the roboadvisors, SmartAsset is a destination site with massive traffic, claiming to reach 35 million consumers a month. Financially, this is a far more scalable model than trying to gather assets under management. That traffic can then monetize through advertising or lead generation -- for comparison, look to LendingTree (public at $3B) or ClearScore (Experian acquired for £275m). Focus Financial, a conglomerate of independent financial advisor businesses, is looking for its own exit soon, and this investment may give it some runway in a more traditional business. Regardless, there are not that many credible independent roboadvisor assets left, as most have been snapped up by incumbents. Despite profitability questions in the space, the direction of travel is growth.


Source: Business Insider (Theranos), Techcrunch (Zenefits), Investment News (Betterment fine), General Atlantic (SigFig), WealthManagement (SmartAsset), Autonomous NEXT (Clearscore)