Robo advisor Wealthsimple pushes for growth spurt before IPO

WealthSimple CEO Michael Katchen
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Fresh off achieving a $1 billion valuation, Wealthsimple's top executive says the firm has more work to do before pursuing an initial public offering.

The online investment company, which announced a new funding round that raised $87 million, plans to use the infusion of capital to build out cash, checking, insurance and mortgage products that will allow it to become users’ primary financial institution, co-founder and CEO Michael Katchen said.

Without that kind of expansion, Wealthsimple would have “still just a small portion of what our clients need to manage their full financial relationship,” Katchen said. The Toronto-based company pitches itself as a low-fee way to invest through robo-advisory services and commission-free stock trading. It has about C$8.4 billion in assets under administration and 1.5 million users.

The company had previously raised about $190 million, valuing it at $743 million, PitchBook data show.

The funding round brought in new Silicon Valley investors led by Technology Crossover Ventures, known as TCV. Other investors included Greylock Partners, Meritech Capital Partners, Two Sigma Ventures and German insurance giant Allianz SE’s venture capital arm. Companies controlled by Power Corp. of Canada, including top holder IGM Financial, will see their stake fall from 70% to about 62%.

“Going public is a big process and introduces different sorts of costs on the business and distractions on the business, and that’s not something we really want to have to worry about right now,” Katchen, 32, said in an interview.

Online investing platforms like Wealthsimple are enjoying a moment in the spotlight. COVID-19 has been a boon for some businesses where new users don’t have to risk a venture into a physical environment, and the volatile markets caused by the pandemic have spawned a new generation of at-home traders on apps such as Robinhood.

The trends have helped Wealthsimple grow rapidly: Katchen said the firm accounted for 18% of new brokerage accounts in Canada in the first half of the year.

But the frenetic market environment has challenged the company’s “Get rich slowly” motto.

Some of Wealthsimple’s users would like to see it follow Robinhood’s lead and introduce riskier products like options trading and margin accounts, Katchen said. While he won’t rule those out in the long term, he’s not planning to introduce them anytime soon. Instead, the company hopes to nudge clients into investing strategies that are more suitable for long-term financial health.

“Robinhood has done a great job at building game mechanics around trading whereas Wealthsimple’s ethos is about wealth generation over time,” said David Yuan, a general partner at TCV, who is joining the Wealthsimple board. “The pandemic has been a strong tailwind for the business.”

Wealthsimple’s relationship with Power Corp. is as strong as ever and the funding round demonstrated that it is flexible in allowing new owners into the company, Katchen said. He also said he sees a long road ahead for himself in the firm.

“I can’t imagine being anywhere else for a very long time,” he said.

--With assistance from Gillian Tan, Sarah Syed and Katie Roof

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