Hmm. So one of the most cut throat hedge funds, Tiger Global Management, just led a $75 million round in #2 American roboadvisor Wealthfront. There is some irony about an alpha-chasing investment product manufacturer putting in a growth stage check into a passive-ETF asset allocator that targets techy Millennials. Is Wealthfront the ultimate tiger cub? Is this the death knell of equity alpha? Or maybe just another example of an asset manager investing in a distribution play to the consumer, like BlackRock and FutureAdvisor, Wisdom Tree and AdvisorEngine, or Jemstep and Invesco? Regardless, we wanted to kick the tires around what this $75 million check could mean to the $9 billion RIA.
Raising money signals multiple things. First, it signals the need to raise capital. This can be driven either by a large cash burn, or the desire to scale quickly to take over a market, or both. In the case of B2C digital wealth, we know that there are no winner take all dynamics for the first wave of roboadvisors by watching the AUM trajectories of the companies in the space. For asset allocators, AUM growth is linear, not exponential. Acorns, Stash, Robinhood, Coinbase are different. Perhaps Wealthfront can tap into their customer acquisition dynamics and product set to open new options (i.e., add crypto like Revolut and some money movement AI). Or perhaps $25 billion in assets is breakeven, and the venture play is for a much longer time horizon, like 10 years from today.
Second, raising money signals the company’s skills at raising money. This can be dependent on product traction, the impression of equity scarcity, and personal networks. In this regard, we do think that Wealthfront has a powerful hand. Living at the heart of the Valley and being run by a well respected venture capitalist implies continued access to capital given sufficient company progress. But, in the global landscape, capital is cheap. If Softbank can write $100 billion of venture checks into American fintech, capital access can't be the determining long-term winning factor. So how is Wealthfront going to do against Betterment? Check out the customer demand below and let us know what you think!