Hungry Index Ventures buys up $3.5M in early Wealthfront employees' stock
In 2010, I predicted that trust in financial institutions had gotten so bad, and the trust in the Internet had gotten good enough, that we were finally -- FINALLY! -- set to see a major disruption in one of the last industries the Web had mostly left unscathed.
But no one said it'd be easy.
It seems that Wealthfront -- called kaChing back when I wrote that article -- is finally making big progress after a name change, three and a half years of work, and a few pivots.
Since January its number of customers has doubled, and assets under management have tripled to $300 million -- with no advertising or paid marketing. And customers are right in the company's sweet spot of the doing-well-but-not-well-enough for traditional asset managers. The average client has invested $100,000 via Wealthfront, and the largest customer has more than $5 million invested via Wealthfront, according to the company.
It takes work to make money management viral, because money is inherently not something people like to talk about, notes Adam Nash, Wealthfront's president. "That really only happens when you have an experience people love," he says. (Although it helps that Wealthfront has a Dropbox-like incentive that gives people discounted fees on assets under management for every friend that's referred.)
Nash was a big hire back in December of last year. He came from Greylock where he was an EIR, but he's most known as a viral growth expert from his time at LinkedIn. He has hired most of his old LinkedIn team to Wealthfront now.
Things are going so well that Index Ventures, who invested in the company's $20 million round just a few months ago, already wanted to invest more. But Wealthfront's CEO Andy Rachleff is "old school," as Mike Volpi of Index says. He didn't want more money just yet, and isn't a guy to take money for the sake of it. So the company did something it hadn't before, and something Index hasn't seen much: It went back to early employees who are no longer with the company to see if anyone had some stock they wanted to sell Index.
Index invested $6 million in the last round and has managed to buy up another $3.5 million via existing shareholders. "The theory of Wealthfront always made sense, but the recent growth has finally proved it," Volpi says. "People thought for years this wouldn't work but Andy is a stubborn guy." Indeed, at times Rachleff has put his own money into the company to keep it going. "I want to buy up whatever I can get," Volpi says. "Hopefully we can get more." Volpi was personally an angel investor in Wealthfront as well, back before he joined Index.
Secondary cash-outs became the rage as Facebook was rising, but many companies have clamped down on them since. In the case of Wealthfront, it was an organized, controlled process. But it was also one that helped give payouts to the people who joined Wealthfront back when it was kaChing -- and a very, very different company.
Why not just raise more money? Nash says there's a cost to even the easiest process in terms of resources and distraction. "Part of the point of us raising the size round we did in March was to get us enough money to spend over the next few years on growing and billing this and get it to scale without worrying about that," he says.
Odds are still decent that Wealthfront will do another round at some point. The company has only really achieved product-market fit now and is going to need to focus on growth even more in coming years. $300 million sounds like a lot, but the market is a $13 trillion one in the US alone, Volpi notes.
Unlike a lot of Web companies, Wealthfront has a business model (hooray!) but part of its disruption is charging far lower fees than the mutual fund industry. Its revenues are pretty transparent: It charges .25 percent and manages $300 million. Even writers can do that math, and it's not enough to fund a big business...yet. "There's a long ways to go to get to $30 billion under management and a lot could still go wrong," Volpi says. "But trust is a huge thing and they seem to be getting over that hurdle. It's an amazing position."
[Disclosure: Saul Klein, a partner at Index, is an investor in PandoDaily.]
[Image Credit: quinn.anya on Flickr]