2014 witnessed the sector’s highest funding total of $287M, as well as the highest average round size
In Tracxn’s latest report on the Robo Advisor sector, we look closely at one of the most interesting segments during the last two years. Robo Advisors are an online wealth management service that provides automated, algorithm-based portfolio management advice with minimal use of human financial planners. These firms typically offer automated services for asset allocation, rebalancing and in some cases tax loss harvesting. The sector has been increasing in popularity over the last few years, with Robo Advisors managing approximately $19B of the total $18T wealth management industry in 2014. Because of its increasing relevance, giants such as Vanguard and Charles Schwab have also launched their Robo Advisory services in 2015 only to emerge as market leaders in the space. It is hence not surprising that investors have had a bullish outlook towards the space.
According to the Tracxn Report, ~$740M has been invested into the space since 2008, and the sector has garnered the interest of investors, the likes of Y-Combinator, 500 Startups, Foundation Capital, SixThirty, Great Oaks VC, Balderton Capital and Route 66 Ventures.
The last two years have been especially significant for Robo Advisor companies, as 70% of the total was invested in the last 2 years alone. Moreover, the last two years also bore witness to 9 funding rounds of over $30M.
2014 witnessed the sector’s highest funding total of $287M, as well as the highest average round size. While 2015 saw a marginal dip in funding, it was also witness to the highest funding round, in the form of Betterment’s $64M raise from Francisco Partners. This made Betterment the first Robo Advisor startup to cross $3B.
Due to the sector seeing such promising trends, new startups are looking positively towards starting up in the Robo Advisor industry, with 2015 seeing an all-time high of 44 new entrants.
In fact, the number of companies founded in last 8 years has seen an upward trend with over 80 companies founded in last 2 years. Moreover, the last two years have witnessed launch of Robo Advisory platforms outside the US and UK with ~15 companies founded in India.
This will certainly lead to more interesting activities taking place in the sector as the market continues to see the influx of dollars coming in through early stage deals.
2015 witnessed the highest number of early stage deals, at 22, continuing to signify investor interest in the sector. A majority of the deals have come through early stage rounds, with only early stage deals happened during the first 3 years since the sectors inception in 2008.
Late stage rounds continue to remain low, with only 23 deals taking place, 14 of which can be attributed to Wealthfront, Betterment, Personal Capital and Motif Investing.
Business Model in Robo-Advisors
Full Stack Platforms, which offer investment services that provide end-to-end, algorithm based automated online platform, have seen the most funding activity, seeing $575M of the total investments. The segment drew in ~$253M funding in 2014, and ~$226M last year.
The Full Stack platform segment has contributed an immense amount of success to the Robo Advisor sector, which as a whole has been attracting attention from not just investors, but also traditional Investment Managers. In fact, banks have participated in the funding of major Robo services. There are also multiple instances of banks launching their Robo Advisory platforms by developing their own technology, or by acquiring Robo startups for their technology.
Preview the Robo Advisors Report here.
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