Shaun Maguire, a partner at Sequoia Capital, first met Samir Vasavada and Runik Mehrotra at an Oct. 1 happy hour for company founders hosted by the venture capital firm. That evening, he visited with about 10 companies but the two founders of Vise, a portfolio management software company, stood out to him.
Vasavada and Mehrotra were ambitious, fast-talking, and intelligent. “Every time I would ask a question, they just had these very deep answers,” Maguire said. But it’s safe to assume a lot of startup founders invited to happy hour by Sequoia Capital share those attributes.
What Maguire also liked was that Vasavada and Mehrotra weren’t just eager to solve problems using technology because they believed they could make money doing it. They seemed to genuinely care about helping financial advisors.
“Oftentimes, in Silicon Valley, you get this arrogance where tech people, they approach a problem thinking, ‘I know the answer. I can't believe people aren't doing it this way. This is how it should be done.’ And to me, [Vise] really was thinking about it from the opposite direction of, ‘We just want to help. This is what [advisors] are already doing and we can help save these people a lot of time and free up time for the things they want to do,’" Maguire said
The partner was impressed enough that eventually in March, only days after markets plummeted into the fastest-ever bear market, he decided the firm should invest in the startup.
Sequoia led a $14.5 million Series A round of funding, Vise announced Tuesday. Previous investors also contributed, including Founders Fund, Bling Capital, Human Capital, Lachy Groom, Steve Chen, a co-founder of YouTube, and Jon Xu, a co-founder of FutureAdvisor. Vise had previously raised $2 million in early-stage funding.
It plans to use the money to continue hiring employees and develop its platform. It recently moved its headquarters from San Francisco to New York City, where there is less competition for talent, according to Maguire.
“I was really nervous when we made the investment,” Maguire said. Portfolios were worth less after the market downturn and that meant lower fees and cash flow for Vise in 2020. But the partner, who is no stranger to finance or technology, is optimistic and enthusiastic about owning part of Vise.
On his way to earning a Ph.D. in physics at the California Institute of Technology, Maguire coded for an algorithmic trading shop and was recruited to work on a machine learning program for DARPA during the war in Afghanistan. He also started a cybersecurity company and ultimately joined Sequoia, the Menlo Park-based firm founded in 1972 and known for being an early investor in what are now some of the world’s most prominent companies.
Vise “has three incredible tailwinds,” Maguire said.
The number of advisors starting or joining independent RIAs continues to grow, especially while advisors trickle out of the largest bank-owner brokerages, or wirehouses. But small wealth managers might not have the scale to afford the research and capabilities available to those at large organizations. Vise says it can deliver that to them.
Meanwhile, advisors are also increasingly outsourcing investment management in favor of spending time with clients and growing their business. A lot of advisors could use help with investment management, whether they want it or not. As much as 55% of all advisory practices rely on their own investment research and portfolio construction but only 7% are adequately staffed to do it effectively. Performance aside for a moment, advisors who outsource at least part of their investment management stand to save, potentially, a tremendous amount of time which they can spend with clients or prospective ones.
Maguire also said that increasing demand for customized investment solutions will lead advisors to seek out companies like Vise.
Vise, which was founded in 2016 initially as an investment research platform, uses artificial intelligence to help advisors build and manage portfolios. However, unlike other subadvisors, wealth managers can still customize individual client portfolios under the management of Vise. For example, a financial advisor might choose to exclude individual securities from a client’s portfolio. A client might not want to, say, invest in a weapons manufacturer or oil producer. Or, a client might own a lot of their employer’s stock and want to balance their portfolio accordingly.
The portfolio management system also helps advisors create risk profiles for each portfolio and performs tax-efficient rebalancing. The company has a partnership with Riskalyze, a company with client and portfolio risk management tools.
Once an advisor puts in place whatever portfolio parameters they need to, Vise will “track security correlations and sentiment across the market” and alert them to changes in market conditions. It also can proactively message clients with important updates. “With Vise, you never have to worry about who is watching over your client accounts. 24/7 and 365 days a year, you have the peace of mind knowing your portfolio manager is always on the job,” the company says on its website.
“We see our competition more being the incumbents in this space, so the same SMA, UMA money managers, and those types of third-party managers, and mutual fund companies like DFA or Franklin Templeton, just those incumbents being our biggest competition, not necessarily the robo-advisors. We think that we're the next step in the evolution to that whole space,” Vasavada said.
Vise charges advisors a fee of 0.07% to 0.25% of the assets they manage on their behalf. For comparison, Betterment for Advisors, another automated portfolio management solution, charges clients 0.25% but advisors cannot exclude individual securities from the available portfolios.
"Historically, there have always been two approaches for advisors managing client portfolios — either you trade them yourself and achieve a high degree of personalization, or you outsource trading to a third party asset manager and achieve a high degree of scale,” Aaron Klein, the CEO of Riskalyze, said.
Vise is seeking to deliver “the best of both worlds — a third party asset management solution so customizable by advisors and personalized to clients that it feels like every portfolio was built from scratch” Klein said.
Perhaps the biggest tailwind started blowing just last fall, when Charles Schwab and others eliminated commissions to trade stocks and ETFs, making the costs of trading a multitude of securities in each account much cheaper. Maguire expects there will be "fast-followers" now that commissions are gone, but Vise has a significant head start, he said.
The portfolio management company had only $4 million in assets according to its most recent regulatory filings. But Vise said it has $800 million committed to the platform from RIAs, meaning they have signed discretionary manager agreements and are currently being onboarded. Vise already has partnerships with Schwab and TD Ameritrade’s RIA custody businesses akin to other subadvisors.
“I think they have a product that is really valuable and people want,” Maguire said. Now, it faces a different challenge: scaling a team and company to service thousands of advisors and potentially trillions of dollars in assets.
“I would describe scaling a company, probably 90% of the problems you run into are problems that other people have run into in the past. And there's so much institutional knowledge, in a place like Sequoia, around what to do when you run into different types of problems, Maguire said.
“And then probably 10% of the problems you run into are new, that no one has ever faced before. And we try to be a sounding board, and a partner with the founders, to help them creatively figure out a solution when those problems arise.”
Even if it brought in no revenue, Vise has raised enough money to keep it operating for three years, Mehrotra said. It's important that advisors know that Vise isn't a startup that is going to disappear anytime soon, he added.
"I think people are a little bit sensitive to that, and some recent tools in this space have actually shut their doors, and that's been, I think, frustrating for a lot of advisors we've talked to. So, it's important for us to have a long runway and for advisors to know that we'll be around," Mehrotra said.