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Wealth Management Startups Set Pace for Annual Funding Record

Globally, venture capital firms invested more than $700 million in the first quarter, and have already made big investments in the second quarter.

Startups that cater to wealth and asset managers raised more than $1.3 billion in venture capital funding in 2020, more than three times the previous year’s total. But 2021 is well on track to be another record year.

Venture capital firms were hesitant to invest in wealth management startups early last year. Covid-19 began rapidly spreading in the U.S. and the duration of the health crisis, and the extent of economic damage, was largely unknown. However, investors quickly regained interest as equity markets rebounded, even as the country remained locked down. 

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So-called “wealthtech” startups, including discount brokerage Robinhood and robo advisors, raised $3.2 billion through 220 deals in 2020, down from 269 deals the previous year, according to Pitchbook, a data company focused on venture capital, private equity, and mergers and acquisitions.

That momentum has continued so far in 2021.

CB Insights, a technology market database and analytics company, recently published its own report on “wealth management software" companies (which it defines as startups that cater only to professional wealth and asset managers). Those companies raised $1.35 billion through 64 deals globally last year. But in just the first quarter of 2021, they raised $712 million through 23 deals, “putting funding on pace to set a new annual record,” according to CB Insights.

In 2020, funding to “wealth management software” companies tripled year-over-year to a record $1.3 billion. Deal activity increased by 8% over the same time period, according to CB Insights.

Deals in the second quarter also suggest 2021 is on track to be a record year. This week alone, at least three wealth management startups announced new rounds of funding.

Japanese conglomerate Softbank Group led a $10 million Series A round of funding for Zoe Financial, a company that matches select wealth managers with prospective clients and doesn’t collect a fee unless they work together.

Altruist raised a $50 million Series B round of funding led by Insight Partners, a venture capital and private equity firm managing $30 billion assets. Vanguard Group, one of the world’s largest investment firms with trillions of dollars in assets, also participated in the round.

Ribbit Capital also led a $65 million Series C round of funding for Vise, a startup that uses artificial intelligence to help wealth managers manage portfolios. The new round of funding valued the company at more than $1 billion.

Meanwhile in the wealth management industry, a recent study showed nearly half of RIA firms would like to do their own merger or acquisition within the next 24 months. Most are not going to do that, according to the report by Dimensional Fund Advisors. 

Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.

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