Startups building tech-based platforms to help make investments continue to be in high demand, building on an expanding market of investors getting more confident to rely on technology to undercut broker fees and speed up the process. Today, one of the hopefuls in the space is announcing a growth round to capitalise on that opportunity.
Scalable Capital — the Munich-based startup that has built a platform to monitor and manage investment portfolios investing in shares, trades and exchange traded funds for a flat fee of €2.99 per month — has closed a round of €50 million ($58 million) to expand its business. Scalable currently has some 80,000 customers across Germany, Austria and the UK. Using its services both directly and via bank partners, the startup says it has over $2 billion under management on its platform and the plan is to build more products for those customers, add more customers in those regions, and potentially look to more countries in Europe.
CEO Erik Podzuweit confirmed to TechCrunch that the Series D was made at a post-money valuation €400 million ($460 million).
The investment is coming from a mix of new and existing investors, including BlackRock, HV Holtzbrinck Ventures and Tengelmann Ventures. It brings the total raised by the startup to €116 million ($133 million).
The last several years have seen a veritable explosion of startups — and banks, often tapping technology built by startups, as is the case with Scalable — building financial technology tools that help people bypass slow, costly, and often less transparent legacy banking services. In place of the incumbents, startups are developing apps and web-based platforms to help users make faster, cheaper and (critically) more financial transactions.
That trend has been accelerated significantly in the last few months, where people are spending a lot more time in front of screens at home as part of social distancing orders to contain the spread of the novel coronavirus. Services that used to be conducted in person are shifting to being carried out online: that was already a trend before the health pandemic, of course, but now with more limited options, people are making the shift faster.
It seems that this is even the case in the world of investing apps.
Despite the wider economic downturn spurred by the global health pandemic, those who have the money to make investments are still doing so, not just to capture new opportunities that are arising, but also to move away from investments that might be less fruitful in the current climate.
It seems ironic for a startup to set out to “democratise” services for wealth management — one way that Scalable likes to describe its service — considering that wealth management is not something that the majority of people will ever have the means to need to think about, but the trend seems to play out at all levels of the economy.
And that means startups are raising money to meet that demand to disrupt traditional brokers. One of Scalable’s direct competitors, Trade Republic, announced a fundraise of $67 million just in April. Others in the same space that are also on the radar of VCs include Bux, YieldStreet (out of the US), Parallel Markets, Freetrade, Revolut and Robinhood.
“In times of Covid-19, our funding round is a powerful signal; it shows that our focused, digital business model is convincing the investors,” Podzuweit, co-founder and co-CEO of Scalable Capital, said in a statement.
To date, Scalable has built its business out as both a B2B and B2C service. For the former, it sells its tech to banks who want to offer a “robo advisor” option to its investor customers. Partners in that business include a mix of huge banks and other startups, among them Barclays, Gerd Kommer Capital, Raiffeisen Banking Group Austria, Raisin, ING Deutschland, Siemens Private Finance, the Openbank digital bank from Santander, Targobank from French Crédit Mutuel, Oskar and Baader Bank.
The B2C service, which was only launched in June, offers a service directly to investors themselves. It sounds like it has been growing very quickly in the month or so it’s been in the market. In an email exchange, Podzuweit — who co-founded the company in 2014 with Florian Prucker, Adam French (previously at Goldman Sachs) and Professor Dr. Stefan Mittnik (an academic who is the current Chair of Financial Econometrics and Director of the Center for Quantitative Risk Analysis at the Ludwig-Maximilians-University in Munich) — said that the B2C and B2B businesses are roughly at a 50/50 rate in terms of revenues at the moment.
The B2C service includes a robo advisor for private investors with an “own asset management strategy.” The service branded “Prime Broker” offers flat-rate trades, and Scalable says that on average users of it service are about 10 years younger than those for its wealth management service (no surprise there, since it’s likely that older people who have accrued more wealth will be the most likely targets for something aimed at “wealth management”).
And that underscores the opportunity for growth into new customer segments that Scalable wants to target with this funding.