Robo-advisory investment firms nearly control just shy of a $500B as of 2020. With millennials and Gen Z building significant investable assets, the assets under management are expected to triple by 2025. Betterment is a digital investment adviser that offers its advisory and management services catered towards three segments – retail investors, businesses through 401Ks, and financial advisors. Using algorithms that match appropriate investments to a customer’s short-term and long-term financial needs, the platform is able to offer tax-advantaged investment management for a fraction of the fees charged by traditional investment advisors. The company, founded in 2008, now has $32B AUM across 700,000 clients.
AlleyWatch caught up with Betterment CEO Sarah Levy to learn more about the company’s growth, expansion plans, latest round of funding, which brings the total equity funding raised to $335M, and much, much more.
Who were your investors and how much did you raise?
We raised $160M in growth capital, split between a $60 million Series F equity round and a $100 million credit facility.
The Series F round was led by Treasury, with participation from our existing investors, including Kinnevik, Bessemer Venture Partners, Francisco Partners, Menlo Ventures, Anthemis Group, Globespan Capital Partners, Citi Ventures, and The Private Shares Fund, as well as new investors Aflac Ventures and ID8 Investments. The $100 million credit facility was established with ORIX Corporation USA’s Growth Capital group and Runway Growth Capital.
Tell us about the product or service that Betterment offers.
- Betterment’s retail side offers holistically integrated banking and investing services geared towards helping customers reach their long-term financial goals. This includes ETF portfolios (socially responsible portfolios are available), as well as a checking and savings product.
- Betterment’s 401(k) arm (Betterment for Business) helps small and medium businesses offer 401k plans that help their employees get on track for retirement.
- Betterment for Advisors helps financial advisors and advisory offices streamline their operations to provide better client experiences.
What inspired the start of Betterment?
Betterment was founded in the wake of the Great Recession, with the goal of changing the financial services industry to one that is customer-oriented. People should be able to trust that their financial partner has their best interest in mind, and Betterment has clearly influenced many of the legacy financial institutions to move in this direction.
How is Betterment different?
Traditionally, people have manually managed their cash and investments in a very manual, disconnected way, which can be a very time-consuming and painful process. Additionally, consumers have paid very costly fees to gain access to financial advisors and successful investment strategies. Betterment offers a holistic platform to manage your finances easily under one roof, with low fees. On the investing side, users get access to portfolios designed for their long-term financial goals, with added tax efficiency (i.e. tax-loss harvesting included). And on the cash management side, Betterment automatically ensures you have enough funds for day-to-day expenses while not sacrificing long-term growth.
What market does Betterment target and how big is it?
Our market is across our three arms:
- Retail: A common customer persona is a 30-something Millennial with a family and disposable income. However, we help new & experienced investors of all ages and financial/life situations invest and save to reach their long-term financial goals (i.e. retirement, college, buying a house, etc.)
- 401k: An SMB is any industry that is looking to kick off a 401k program for their employees in the U.S.
- Advisor: Any financial advisor or advisory office that wants to streamline their business operations in the U.S.
What are your post-COVID office plans??
Our offices have reopened and we are hiring extensively. We have welcomed so many great new people this year and have plans to hire 50 more before year-end. Our talent pool is incredible—we are focused on diversity in terms of gender, ethnicity, and background.
What was the funding process like?
We strategically tapped investors that were already close to Betterment. Our insiders are extremely bullish on our story — and are putting in more money. Outside investors offered us term sheets at higher valuations and we turned them down.
What are the biggest challenges that you faced while raising capital?
Efficiency was our No. 1 goal. It wasn’t just about raising the biggest round conceivable.
What factors about your business led your investors to write the check?
This financing is the result of our incredible momentum and sustainable growth
Year-to-date, we have delivered record growth across both the retail and 401(k) arms of the business and made a strategic push into ESG investing. In 2021, net deposits are up 240% to $3.8 billion. New 401(k) plan adoption is up 370% YTD, as we’ve made more aggressive moves in the growing market for retirement savings solutions
Our socially responsible investing portfolios surpassed $1B.
What are the milestones you plan to achieve in the next six months?
Using these funds, we plan to grow our 401(k) business (Betterment for Business), expand our capability around investing choice, and continue to fund our ongoing growth.
What advice can you offer companies in New York that do not have a fresh injection of capital in the bank?
Double down on your employee base and win from within. We share a deep commitment to building a collaborative and inclusive culture that strives to make people’s lives better. Innovation drives them and great discussion shapes our roadmap.
What’s your favorite outdoor dining restaurant in NYC
Cookshop.
