I could talk about early-stage business operations and community-based marketing for hours, but deal flow is my Weakness. However, I took notice when UBS, a Swiss investment bank, bought financial robot-advisor Wealthfront for $1.4 billion in an all-cash acquisition this week. “At such prices, the company’s exit price is a win,” Alex Wilhelm of The Exchange stated. “However, its exit value can be calculated from a variety of viewpoints, including AUM, customers, and income,” he noted.
When Alex looked at each of those aspects individually, he discovered that the arrangement is more than just a “next-gen drive” to “target-rich young Americans,” as some headlines suggested. This exit will help other fintechs establish expectations, but it should also give anyone who believes it is too late to start a company in this field a mental boost.
Even while just over 56% of Americans own stock, this figure is still several percentage points lower than it was before the Great Recession a decade ago. I would say the robo-advisor race is still running a parade lap, with more people buying bitcoin and fractional shares today. Alex, who floats through deal flow like a dolphin, agrees with me – to a point:
The recent fall inactive users on platforms like Robinhood, as well as the recent success of fintechs like M1, could signal to a market that is more amenable to robo-advising, but the question is whether their lower-cost model can prove sufficiently compelling to investors. For example, Wealthfront takes a 0.25 percent cut of consumer funds. When we compared Robinhood’s PFOF incomes to lower-value customer accounts that were actively trading, I believe it did a little better. Can the robos show a similarly good financial picture? If they succeed, they will most likely be less volatile than Robinhood.
VCs were notoriously hesitant to invest in education-related ventures prior to the pandemic. Today’s edtech startups are experiencing larger average deal sizes, non-VC seed and pre-seed funding, and an infusion of generalists. Funding for edtech businesses operating in Europe and North America has raised in the last year, according to Rhys Spence, head of research at Brighteye Ventures. “Exciting firms are springing up across all geographies and verticals,” adds Spence, “and even generalist investors are sure the industry can produce the same kind of outsized returns as fintech, health tech, and other areas.”