March 31, 2016
Betterment, a leading robo-advisory platform powering automated investments, has recently received $100 million in its series E funding round from AB Kinnevik, a Swedish investment firm. Previous investors of Betterment, i.e., Bessemer Ventures Partners, Menlo Ventures, Anthemis Group and Francisco Partners also participated in this round. This brings the total amount raised to over $205 million. This deal values Betterment at $700 million, up from 450 million in 2015. Betterment’s funding has raised curiosity among industry experts as the funding has been raised by a European VC firm. This deal may infer that Betterment is planning to expand its business in Europe in the near future.
Betterment’s fresh round of funding demonstrates the demand and interest among venture capitalists in digital wealth offerings. The company is planning to use the new $100-million fund to enhance its recently launched line of business and has added a number of features like an account aggregation tool that pulls all customer assets into one dashboard, a retirement guide, etc. Betterment's software invests and rebalances accounts automatically using cash inflows & dividends and uses software & algorithms to track whether or not a customer is likely to reach a specific goal. Betterment’s Chief Executive and Founder Jon Stein stated, Our goal is to become the central financial relationship for our clients. Due to the overall customer experience, including ease of use and emphasis on design, Betterment has been called the "Apple of finance."
The buzz about robo-advisors is accelerating; other players like Wealthfront and Robinhood are tough competitors. Recently, Wealthfront launched a new tool called the Wealthfront Portfolio Review for investors to compare investment expenses as the focus of the industry moves towards tracking expenses. The product allows anyone to connect to their brokerage account and receive a review of their portfolio expenses. In addition, Robinhood has launched a zero-commission stock trading app for free stock trading.
Betterment’s portfolio is designed to achieve optimal returns at every level of risk. Through diversification, automated rebalancing, better behavior and lower fees, a customer can expect 4.30% higher returns than a typical DIY investor. It currently manages $3.9 billion in assets for around 150,000 customers, whereas its competitor Wealthfront manages around $3 billion. The company charges roughly 0.34% in advisory fees and fund expenses for managing a customer’s portfolio of exchange traded funds. A typical mutual fund will charge roughly 1.4% and a managed exchange traded fund will charge 1.78% in fees, according to Betterment.
Betterment provides investment advice and fully automated investment management to customers for less than the typical cost of a traditional financial advisor or wealth manager. All transactions occur online – it is an execution-only service. Betterment does not have brokerage sales representatives or advisers. It provides both financial advice and investment management to customers. Betterment is headquartered in New York City, and has received funding from Menlo Ventures, Bessemer Venture Partners, and Anthemis Group.
About AB Kinnevik:
AB Kinnevik is a Swedish investment company that was founded in 1936 by the Stenbeck, Klingspor and von Horn families. Kinnevik investments are made primarily in technology-based services aimed at consumers. Kinnevik holds significant stakes in about 50 companies operating in more than 80 countries, with a particular focus on growth markets.