This content is from: Wealth Management

VC Investment in Wealth Management Startups Has Plummeted. Was 2019 the Top?

A record $2.1 billion was invested in so-called wealthtech last year. This year could pale in comparison.

Venture capital firms did fewer deals with fintech companies in the first quarter but invested an equal amount of money as last year. However, the same didn’t happen in the so-called wealthtech segment.

Fintech companies in North America and Europe raised $6 billion in the first quarter of 2020, roughly the same total raised during the first quarter last year. But year-over-year deal volume shrunk from 504 to 325 during the same period, according to PitchBook, a data company focused on venture capital, private equity, and mergers and acquisitions.

Late-stage companies, that often require bigger fund raises, secured 76% of the money invested in the first quarter, as venture capitalists “continued to favor more established players with greater market share” while fear of a global pandemic started to take hold.

The pandemic then struck, leading to a dramatic market downturn and economic turmoil — tens of millions of people are now out of work in the U.S. alone. Still, PitchBook analysts say the traditional financial services industry and fintech startups “appear well prepared to weather this crisis” that could accelerate trends and help startups in the long term. For example, falling consumer spending will harm payment service providers now, but increased digital and contactless payment adoption could help those companies in the long run, according to PitchBook’s recently published quarterly Emerging Tech Research report.

However, the story in the so-called wealthtech segment — which includes companies like Robinhood, Facet Wealth, Vestwell, Cadre, Betterment and others — was slightly different. Like fintech overall, “long-term fundamental drivers exist” in wealthtech, but deal volume plummeted and companies raised a meager sum of money in the first quarter.

There were only 20 deals in the first quarter and deal value was down 75% year-over-year to $178 million.

In 2019, there were a total of 151 deals in the wealthtech segment and venture capital firms invested a record $2.1 billion into those companies.

“Although the high market volatility has led to a flock to digital trading apps and increased trading, we believe there has been an overall decrease in fund flows (lower AUM). We believe investors are still sorting out the impact of a downturn on companies in this space. However, over the long term, we expect increased investment into this segment as retail investors and those looking to save for retirement continue to rely on new technologies to achieve their financial goals,” the PitchBook report said.

“Current market conditions will slow growth in the mid-term, but we expect this space to experience stronger growth then original projections once a recovery ensues.” 

In 2019, the size of the wealthtech market, measured by the segment’s assets under management, was $1.5 trillion. PitchBook expects the asset base to grow to over $6 trillion by 2023, representing a compound annual growth rate of 42.3%.

Among wealthtech companies, PitchBook’s latest report said “expect hybrid models to win,” echoing the prediction of another recent research report

“Many of the robo-advisors currently on the market fall under low-cost and low-personalization or high-cost and high-personalization. We believe there are massive gaps in the market, creating opportunities for companies to provide a low-cost, high-personalization robo-advisors by iterating on technologies such as predictive analytics and machine learning,” the report said.

The PitchBook report did not predict what would happen to deal activity in the second quarter of this year, although there has been some activity in recent weeks. Just before the end of the first quarter, Sequoia Capital led a $14.5 million Series A round of funding for Vise, an AI-driven portfolio management system.


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