New Unicorn Wealthsimple Plans Insurance, Mortgage Products Buildout Before IPO

New Unicorn Wealthsimple Plans Insurance, Mortgage Products Buildout Before IPO

2020-10-16 12:35:16
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Fresh off achieving a $1 billion valuation, Wealthsimple Inc.’s top executive says the firm has more work to do before pursuing an initial public offering.

The online investment company, which on Wednesday announced a new funding round that raised C$114 million ($87 million), plans to use the infusion of capital to build out cash, checking, insurance and mortgage products that will allow it to become its users’ primary financial institution, Michael Katchen said.

Without that kind of expansion, Wealthsimple would have “still just a small portion of what our clients need to manage their full financial relationship,” Katchen said. The Toronto-based company has about C$8.4 billion in assets under administration and 1.5 million users.

The funding round brought in new Silicon Valley investors led by Technology Crossover Ventures, known as TCV. Other investors included Greylock Partners, Meritech Capital Partners, Two Sigma Ventures and German insurance giant Allianz SE’s venture capital arm. Companies controlled by Power Corp. of Canada, including top holder IGM Financial Inc., will see their stake fall from 70% to about 62%.

“Going public is a big process and introduces different sorts of costs on the business and distractions on the business, and that’s not something we really want to have to worry about right now,” Katchen, 32, said in an interview.

Rapid Growth

Online investing platforms like Wealthsimple are enjoying a moment in the spotlight. Covid-19 has been a boon for some businesses where new users don’t have to risk a venture into a physical environment, and the volatile markets caused by the pandemic have spawned a new generation of at-home traders on apps such as Robinhood.

The trends have helped Wealthsimple grow rapidly: Katchen said the firm accounted for 18% of new brokerage accounts in Canada in the first half of the year.

But the frenetic market environment has challenged the company’s “Get rich slowly” motto.

Some of Wealthsimple’s users would like to see it follow Robinhood’s lead and introduce riskier products like options trading and margin accounts, Katchen said. While he won’t rule those out in the long term, he’s not planning to introduce them anytime soon. Instead, the company hopes to nudge clients into investing strategies that are more suitable for long-term financial health.

“Robinhood has done a great job at building game mechanics around trading whereas Wealthsimple’s ethos is about wealth generation over time,” said David Yuan, a general partner at TCV, who is joining the Wealthsimple board. “The pandemic has been a strong tailwind for the business.”

Wealthsimple’s relationship with Power Corp. is as strong as ever and the funding round demonstrated that it is flexible in allowing new owners into the company, Katchen said. He also said he sees a long road ahead for himself in the firm.

“I can’t imagine being anywhere else for a very long time,” he said.

Photo: Mike Katchen, chief executive officer of Wealthsimple Inc., speaks during an interview in Toronto, Ontario, Canada, on Wednesday, Aug. 14, 2019. Within five years, Wealthsimple has attracted 150,000 customers in Canada, the U.S. and U.K., and now manages more than C$4.5 billion ($3.4 billion).

Copyright 2020 Bloomberg.

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