It doesn't always end in tears: Inside Wealthfront's second orderly CEO switch

By Sarah Lacy , written on January 21, 2014

From The News Desk

Adam Nash is replacing Andy Rachleff as CEO of Wealthfront -- the company's third CEO in its young life. Rachleff was the "grown up" who originally replaced founder Dan Carroll, as the company moved out of its early Web 2.0-ish "kaChing" phase.

It's rare that a company doing well has three CEOs in less than five years. It's rarer still that the professional, experienced "grown up" who replaced the founder has decided to replace himself. And even rarer? That it happens with no tears, with all three staying at the company.

Rachleff -- a co-founder of Benchmark Capital and Stanford professor who came out of semi-retirement to run Wealthfront -- will remain Chairman and an evangelist for the company. Carroll is still there too, evaluating new business opportunities and reporting only to the CEO and having no one report to him. Rachleff hired Nash more than a year ago as COO, with the understanding that if all went well, he'd take over as CEO within the year.

Over that time, Nash replaced much of the team and expanded the engineering and growth teams. He's hired a full two-thirds of the current staff. Almost all of the company has reported to him well before the official handover officially happens today. While a change in CEO is frequently a violent organ transplant that may or may not take, this is largely just another Tuesday for most Wealthfront employees.

If the move is in any way bittersweet for Rachleff, he does a great job of hiding it at a long lunch last week. "I know my limitations," he says, with the toothy Rachleff perma-grin. "I was meant to be a VC. It's a totally different skill set. Being a good VC doesn't mean you are set up to be a good CEO."

Rachleff is practically central casting of the 1990s era of VCs: Polished, blue shirt and khakis, killer rolodex, every hair in place, and not a lick of operating experience before the surprise jump to Wealthfront after his VC retirement. He's belatedly learned what so many entrepreneurs scream from the rafters: VCs have no idea how hard this job is until they actually do it. 

After the past few years, he will never, ever forget. He utters the line I've heard from so many 20-somethings who didn't know what they were getting into when they took their first wide-eyed seed investment: If' I'd known how hard this was going to be, I probably wouldn't have done it. It sounds funny coming from a man in his 50s who made his career, his name, and his wealth in the startup world. 

Rachleff says he's forever changed as an investor in one important way: "I'm a better board member now, because I speak less." (Cue cheering from anyone who has ever started a company.)

Rachleff is good friends with Bonobos co-founder CEO Andy Dunn. Dunn previously predicted to me that Rachleff would be the first successful VC with zero operating experience to build a billion dollar company after leaving venture capital. But Rachleff isn't tempted by that narrative.

Rachleff is unafraid to admit that he is looking forward to the luxury that a VC has and a CEO doesn't: Coming home, and turning it off. Going to the movies. Going to dinner with his family. And not spending every moment obsessing about what Wealthfront needs. "I didn't realize how all consuming it was," he says.

He describes that decision to wake up everyday and stay the CEO of a growing company as a tradeoff between the "joy of the game" and "the pain of obsession." He decided once he pivoted Wealthfront to a product market fit, he'd happily forgo that joy to spare himself the ongoing pain.

One of his closest friends advised him that when you are CEO, you should just go home the second you get some good news, because bad news is sure to immediately follow. In that respect, Rachleff is leaving his job at Wealthfront on a high note. Last week, the company announced it crossed more than $500 million in assets under management, growth of some 450 percent.

If you're gonna get an exclusive on a CEO change, a tear-less one isn't exactly the juiciest storyline a reporter could hope for. But it's certainly a good sign for Wealthfront. It's also part of a larger pendulum switch the Valley is going through from a late 1990s-induced paranoia that a founder-less corner office is doomed to a world where founders admit they don't have all the answers, and frankly, some of them don't enjoy being the CEO. While some of the biggest tech companies in the world -- including Amazon, Apple, Facebook, and Oracle -- were run by their founders, many others like Yahoo, eBay and -- for a time -- Google weren't.

It's no surprise those latter three examples -- Yahoo, eBay and Google -- still had close ties to their founders in their glory years. It's not that a founder has to run a company forever, but a founder staying close to senior management and helping guide it in the right directions highly correlated with success. That bodes well for a company like Wealthfront where a transition is orderly and planned.

Reid Hoffman was one of the first with credibility to take on the cult of the founder, and argue that sometimes you need a non-founder CEO in an essay last year.

Indeed, LinkedIn is one of the best examples of this. It was Hoffman who routinely fired himself from LinkedIn's CEO job, until he found the right fit in Jeff Weiner. Hoffman is extraordinarily involved in the day-to-day of LinkedIn -- he just doesn't want to be the CEO, and his ego isn't tied up in it.

Another strong example is Twitter -- a company where two different founder CEOs had to come to the (forced) realization that they weren't right for the job. The aftermarket performance of Twitter, like LinkedIn, has ultimately validated the board's move. While Twitter was a far more contentious situation than LinkedIn, both Jack Dorsey and Evan Williams have at least remained on the board.

There's also Pandora. As he discussed at the last PandoMonthly, the stress of building the company came with nearly half a million dollars in debt and even a trip to the emergency room for co-founder Tim Westergren. And yet, his job isn't CEO. His role is being an advocate for the Pandora listener, conducting town hall meetings all over the world, and serving as the company's most authentic pitchman for big ad deals.

Consider even Groupon and Zynga. The two recent IPOs where where the cult of the founder arguably ran the strongest, where there was -- in the case of Zynga -- multiple classes of shares to protect against an ouster, have both seen changes in the corner office. And in the case of Groupon, it astoundingly seems to be working. When Groupon's Andrew Mason was fired, he was painted as a sympathetic fall guy of a damaged culture that others helped create. Looking at the stock today, maybe not...

But back to Wealthfront. When Rachleff knew he wanted to step down in another year or so, and a friend at Greylock suggested he chat with Adam Nash. Nash was an entrepreneur in residence at the time after stints at Apple, eBay, and LinkedIn. (Fun fact: That's the job LinkedIn hired Jeff Weiner out of as well.)

Nash had been a part of Valley greatness several times but never the guy. Like Rachleff, he has an easy, thoughtful bedside manner. And oddly enough he was one of the few people in the Valley who loves to think about the world of personal finance.

The very first time I met Dan Carroll, he said Wealthfront's biggest challenge was finding engineers and Valley execs who want to work on a finance product. Nash meanwhile, started an investment club back at Stanford for engineers and was an evangelist for Wealthfront back at LinkedIn.

At the end of the first meeting Rachleff declared, "This is our CEO!" but Nash wasn't so sure. He's an over-analyzer, as are a lot of growth experts who do their "magic" by poring over endless streams of data. Wealthfront was such a natural place to finally make his big break as a CEO that he worried it was too good to be true. It was his wife that finally said to him, essentially, "I'll support whatever you want to do, but honey, it's okay that you like this."

Wealthfront is still in early days. It's distinguished itself by proving it should exist in a consumer Web filled with mindless photosharing apps, and where so many other personal finance tools have died. It's been aided by quick pivots, a lean staff of just 32 people, and great timing. Never before did brokerages open up their APIs to a company like Wealthfront, which is essentially a glorified, overbuilt app. It's launched at a time when trust for Wall Street is at its nadir and tech wealth is surging.

Wealthfront is known as a company that manages high tech, recent IPO wealth, and it's certainly gotten a boost from that. But Nash points out that Google -- not Facebook or LinkedIn -- is the biggest employer of Wealthfront account holders and still-private Palantir is number six on the list. Likewise, not all of its customers are rich. The average account size is $91,000. It recently lowered the age to open a Wealthfront account and its first 19-year-old joined. Nash hopes he could be the first client the company has for 100 years.

Nash compares what Wealthfront could be for millennials to what Charles Schwab was for baby boomers -- a whole new way to manage money that your parents may balk at, but makes total sense for a 20-something or 30-something just starting to build wealth. More than half of Wealthfront's clients are under 35 and over 85 percent are under 50. "Every generation wants to deal with money differently," he says. In the days of Schwab it was a discount brokerage. Today, it's a trust for software over in-person services. And, Nash likes to point out, there are more millennials than there were baby boomers.

But size of market has never been Wealthfront's issue. This is a huge multi-trillion dollar market. And while Wealthfront's assets under management sound huge, its fees are a tiny .25 percent of accounts only over $10,000. Wealthfront doesn't need every millennial's savings to build a billion dollar company, but it needs to get a lot more assets under management before it can become even a profitable one.

Nash has made his name as a growth hacker, when it comes to ginning up more social media profiles. It's up to him to see if those same techniques will work with people's hard earned cash.

[Image via Wealthfront]