Why Wells Fargo, Morgan Stanley, and Others Helped Vestwell Raise $70 Million

“When you have a strategic investor who is also a commercial partner you are more closely aligned to a great outcome,” Aaron Schumm, the founder and CEO of Vestwell, said.

(Illustration by RIA Intel)

(Illustration by RIA Intel)

A long list of financial services firms with retirement plan businesses, as well as independent venture capitalists, have backed Vestwell, a growing defined contribution plan and savings software firm in New York.

Vestwell said Tuesday it raised $70 million in a Series C round of funding led by Wells Fargo Strategic Capital and Fin Venture Capital. Other participants included Goldman Sachs, Morgan Stanley, Manulife, and Point72 Ventures, the early-stage venture capital strategy funded exclusively by Steve Cohen and some employees of Point72 Asset Management. Others also participated in the round.

Vestwell Founder and CEO Aaron Schumm declined to share what his company was valued at after the recent round of funding. He told RIA Intel the valuation was “a nice step-up” and that Vestwell has a clear “line of sight” to becoming a company worth billions of dollars in the next several years. “I never would have said or thought that a few years ago. Maybe I’m just overly conservative or jaded in my older age,” he added. Schumm founded Vestwell in 2016 after co-founding FolioDynamix, which was acquired by Envestnet shortly after he left.

After raising a $30 million Series B round of funding in 2019, the company had a post-raise valuation of $150 million, according to PitchBook, a data company focused on venture capital, private equity, and mergers and acquisitions. Vestwell has raised a total of $112 million in funding.

The latest round can support Vestwell for years to come, as it continues to develop and improve its services, Schumm said. In addition to 401(k) and other investing services, it plans to offer businesses emergency savings accounts, health savings accounts, and other benefits.

At first glance, it might seem like some investors were buying a stake in a competing business. Morgan Stanley has been expanding its workplace and benefits business in recent years and Wells Fargo also supports business retirement plans.

Schumm says that’s not the case.

Many legacy workplace benefit businesses are huge, with hundreds of billions of dollars under advisement, and can accommodate the complex needs of large companies. But there is plenty of opportunity for companies like Vestwell to help small businesses offer more workplace benefits to employees. Tens of millions of U.S. workers don’t have access to a retirement plan, or don’t use one available to them. But many of those with retirement accounts are woefully behind on saving; the median retirement savings account of $120,000 for those approaching retirement (age 55 to 64) will provide less than $1,000 per month over a 15-year span.

Morgan Stanley is also a client of Vestwell and plans to begin rolling out the software to its more than 15,000 financial advisors this week. Well Fargo is in talks to do the same for its advisors, a spokesperson for the bank told RIA Intel.

“When you have a strategic investor who is also a commercial partner you are more closely aligned to a great outcome,” Schumm said. “I like those sorts of structures.”

The latest round was oversubscribed by three times and Vestwell was able to choose the investors it did. He surely isn’t the first to use the analogy, but Schumm likened his fintech company to a rocket ship taking off. It works. Now it’s a matter of how high it can go.

“We invest in high-quality companies that are leaders or emerging leaders in their industries, and where we see great potential. Vestwell is no exception. While we see rapid development in every aspect of fintech, modernization of the infrastructure for 401(k) and workplace saving plans was not necessarily evolving at that same pace,” said Tom Richardson, head of Principal Technology Investments at Wells Fargo Strategic Capital.

“Yet, this is very important as millions of small businesses in the U.S. have historically experienced challenges in providing retirement benefits to their employees due to the administrative cost entailed,” Richardson continued. “To put it quite simply, Vestwell provides a modern, easy-to-use platform that can provide small businesses at scale with access to quality workplace savings programs. That’s why we’re excited to invest and see their continued growth.”

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