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Amid rising interest in retail stock-trading platforms, Wealthsimple announced today that it raised $750 million at a valuation of $5 billion, in a funding round led by major Silicon Valley investors Meritech and Greylock Partners, with participation from high-profile firm Iconiq Capital. It also included several high-profile individual investors, like musician Drake and actors Ryan Reynolds and Michael J. Fox. Inovia Capital was the only Canadian investment firm participating in the round. Here’s what else you need to know:
Rising valuation: Wealthsimple, one of the biggest competitors to Canada’s established financial institutions, offers a platform where users can send money, trade stocks and manage their finances. The surge in retail investors using platforms like Robinhood to trade stocks since the start of the pandemic has fuelled the rapid growth of companies offering financial services; Robinhood, for example, raised more than US$1 billion earlier this year. For Wealthsimple, the latest round follows a $114-million financing round in October 2020, when the company was valued at $1.5 billion.
Show us the money: Wealthsimple now has a base of about two million users, co-founder and CEO Michael Katchen said in an interview with The Logic, though it isn’t yet profitable. Unlike Robinhood, Wealthsimple doesn’t receive payment for order flow, an arrangement in which trading services are compensated for routing orders to other trading providers, and which accounts for about one-fifth of Robinhood’s revenue. Instead, Wealthsimple makes money primarily by charging customers fees for its investment-management business and through foreign-exchange fees on securities transactions.
What’s next: Katchen said Wealthsimple plans to use the new funding to grow its suite of offerings rather than prioritizing profitability. For instance, he said Wealthsimple has aspirations in the insurance business, and hopes to further integrate its existing services, such as by automatically using investment data to fill out users’ tax forms. By creating a more integrated and user-friendly experience, Wealthsimple’s ambition is to replace incumbent banks as Canadians’ preferred platform for managing their finances, Katchen said. The company faces competition from other fintech startups, like U.K.-based Revolut, which is planning to relaunch in Canada next year, in addition to established banks.
Power Corp’s shrinking stake: This latest financing round marks the first time the Power Corporation, which as of the end of 2020 held a stake in Wealthsimple worth about $934 million, will not be a majority owner of the company, Katchen said. Still, Power, a major player in the Canadian financial-services industry, will continue to hold 60 per cent of Wealthsimple’s voting control. “They remain a committed and long-term shareholder,” Katchen said.
