Stein Says Betterment IPO Likely... Eventually

Stein Says Betterment IPO Likely... Eventually

While many entrepreneurs and investors in start-up robo platforms have found an exit strategy in being acquired by larger established firms, Betterment’s plan is to go public, CEO Jon Stein told WealthManagement.com. Stein doesn’t expect an initial public offering in the immediate future, but says the company would likely do it once it reaches between $50 million to $200 million in revenue.

“I think that that’s based on dynamics like how much float you want to have out in the market,” Stein said during the CFA Institute’s annual conference in Montreal this week. “There’s kind of a minimum capitalization that gets interest from enough bankers and analysts and so on to continue to make it easy for you to manage life as a public company. I would expect us to follow that pattern.”

In recent months, several robo advice providers have been sold or partnered with larger institutions. Last August, BlackRock announced its acquisition of San Francisco-based FutureAdvisor. Earlier this year, Invesco purchased Jemstep, an advisor-focused robo platform. Northwestern Mutual bought LearnVest in March 2015.

“While we are not surprised that there’s been some consolidation in the robo space, it doesn’t affect us,” Stein said. “We continue to open up a gap between us and the competition. And that’s just going to accelerate over time. These consolidations are a natural byproduct of that.”

In March, Betterment raised an additional $100 million, bringing its total funding to $205 million. The latest round raised its valuation to $700 million. That compares to a valuation of $450 million from previous fundraising in February 2015, according to published reports.

Betterment does not disclose revenue numbers, but a ballpark estimate, assuming $4 billion in assets with an average 25 basis point fee, would be somewhere around $10 million. 

And in January, the New York Business Journal named Betterment as one of 16 New York-based start-ups poised to go public this year, based on its fundraising.

Some argue that the business-to-consumer robo advisor business is dying, and that Betterment and other robos aren’t growing fast enough to be profitable.

“This year we are growing faster than ever before,” Stein said. “Over the last year, we grew from about $1 billion at the beginning of 2015 to now well over $4 billion today.”

Stein said the company did especially well in January, when the markets were volatile.

“Many people said that would be a really difficult time for Betterment, maybe for robo advisors generally and that we would see a slowdown or we’d see customers panicking and exiting and actually lose assets,” Stein said. “And quite the contrary, January was our fastest-growing month ever. We had more new customers signing up; we also had more net deposits. We even had more new net deposits from existing customers.”

The average age of Betterment’s users is 36, with average investable assets of $80,000 and average net worth of $250,000. But more wealthier, older people are starting to use the robo. Today, 30 percent of the start-up’s assets are from people age 50 and over. For their wealthier customers—those with over $250,000 of investable assets, the company holds an average 20 percent share of wallet. But that compares to 5 percent two years ago.

“One of the biggest drivers of our business is wealthier customers moving more assets to us more quickly because of the sophistication of the platform, because of the building of the brand and the time in the market,” Stein said, speaking to a room full of advisors at the CFA Institute conference.

But most wealthier people already have a financial advisor. “We’re not going to break that relationship,” Stein said. Advisors do much more than investment management, including estate planning and planned charitable giving, things that Betterment can’t automate. “We will not put financial advisors out of a job,” he said.

TAGS: Technology
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