Betterment and the boldness of youth
Will the $100 million investment in Betterment by VC Fund Kinnevik turn out to be a bargain, or a bust? The nine-figure sum represents a boost to flagging investment in the robo business, as well as a vote of confidence in Betterment, which has used fees as low as 15 bps and aggressive marketing to acquire more than 150,000 customers. It is worth noting that Betterment has achieved this growth with little employee turnover, hence the lack of a private or secondary market for its shares. Despite the efforts of Schwab et al to corner the automated advice market, it seems clear that there will be space for independent players, particularly those with a sound brand, innovative product strategy and a holistic view of wealth management.
There’s some irony in using old media (TV, billboards on taxis) to advertise a digital platform, but Betterment has been able to gain recognition both within the financial services industry and the broad consumer market. Part of this success has to do with being an early mover with a straightforward message. Betterment emerged from the ruins of the financial crisis offering a “better way to invest.” This meant taking the cumbersome account opening process and the need for multiple signatures completely online, while openly publishing fees. In an industry wedded to jargon, the clarity provided by Betterment and other early movers like Wealthfront meant a lot.
Another part of the story has been Betterment’s ability to build a better mousetrap. Betterment has continuously extended platform functionality (to include retirement solutions, for example), added an aggregation function, and even stepped on banks’ toes. As with clear messaging, this kind of innovation has helped Betterment stay current and avoid the slightly stale odor that increasingly permeates “Fintech”. It has also underscored the increasing maturity of a business that no longer targets just 20-somethings, but seeks the assets of older individuals with multiple investment accounts, 401k assets and plans that extend beyond the next five years.
The ability to think bold has helped the youthful firm move past competitors who have stayed small and position itself as a legitimate counterweight to the megafirms now strutting the robo stage. Kinnevik believes that a dashing brand and robust platform will help Betterment win over these less nimble and less trusted incumbents, and why not? Investor memories are short except when they are long….who after all, believes that investors have really forgotten the financial crisis?