M1 Finance
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Should there be some law against raising three times in one year?
Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s broadly based on the daily column that appears on Extra Crunch, but free, and made for your weekend reading. Want it in your inbox every Saturday morning? Sign up here.
Ready? Let’s talk money, startups and spicy IPO rumors.
Every quarter we dig into the venture capital market’s global, national, and sector-based results to get a feel for what the temperature of the private market is at that point in time. These imperfect snapshots are useful. But sometimes, it’s better to focus on a single story to show what’s really going on.
Enter AgentSync. I covered AgentSync for the first time last August, when the API-focused insurtech player raised a $4.4 million seed round. It’s a neat company, helping others track the eligibility of individual brokers in the market. It’s a big space, and the startup was showing rapid initial traction in the form of $1.9 million in annual recurring revenue (ARR).
But then AgentSync raised again in December, sharing at the time of its $6.4 million round that the valuation cap had grown by 4x since its last round. And that it had seen 4x revenue growth since the start of the pandemic.
All that must sound pretty pedestrian; a quickly-growing software company raising two rounds? Quelle surprise.
But then AgentSync raised again this week, with another grip of datapoints. Becca Szkutak and Alex Konrad’s Midas Touch newsletter reported the sheaf of data, and The Exchange confirmed the numbers with AgentSync CEO Niji Sabharwal. They are as follows:
- Present-day revenues of less than $10 million, but with ARR growing by 6x in 2020 after 10x expansion in 2019.
- No customer churn to date.
- Its $25 million Series A valued the company at $220 million, which Konrad and Szkutak describe as “exactly 10x AgentSync’s valuation from eight months ago.”
That means AgentSync was worth $22 million when it raised $4.4 million, and the December round was raised at a cap of around $80 million. Fun.
Back to our original point, the big datasets can provide useful you-are-here guidance for the sector, but it’s stories like AgentSync that I think better show what the market is really like today for hot startups. It’s bonkers fast and, even more, often backed up by material growth.
Sabharwal also told The Exchange that his company has closed another $1 million in ARR since the term sheet. So its multiples are contracting even before it shared its news.
2021, there you have it.
Meet Conscience.vc
Also this week I got to meet Ariana Thacker, who is building a venture capital fund. Her route to her own venture shop included stops at Rhapsody Venture Partners, and some time at Predictive VC. Now she’s working on Conscience.vc, or perhaps just Conscience.
Her new fund will invest in companies worth less than $15 million, have some form of consumer-facing business model (B2B and B2B2C are both fine, she said), and something to do with science, be it a patentable technology or other sort of IP. Why the science focus? It’s Thacker’s background, thanks to her background in chemical engineering and time as a facilities engineer for a joint Exxon-Shell project.
All that’s neat and interesting, but as we cover zero new-fund announcements on The Exchange and almost never mini-profile VCs, why break out of the pattern? Because unlike nearly everyone in her profession, Thacker was super upfront with data and metrics.
Heck, in her first email she included a list of her investments across different capital vehicles with actual information about the deals. And then she shared more material on different investments and the like. Imagine if more VCs shared more of their stuff? That would rock.
Conscience had its first close in mid-January, though more capital might land before she wraps up the fundraising process. She’s reached $4 million to $5 million in commits, with a cap of $10 million on the fund. And, she told The Exchange, she didn’t know a single LP before last summer and only secured an anchor investor last October.
Let’s see what Thacker gets done. But at a minimum I think she’ll be willing to be somewhat transparent as she invests from her first fund. That alone will command more attention from these pages than most micro-funds could ever manage.
A whole bunch of other important shit
The week was super busy, so I missed a host of things that I would have otherwise liked to have written about. Here they are in no particular order:
- FalconX, a startup that powers crypto-trading on other platforms, raised $50 million this week. The round comes after the company raised $17 million last May. I wrote about that here. Tiger Global led the round, natch, as it has led nearly every round in the last month.
- The FalconX round matters as the company grew from what we presume was a modest trading and revenue base into something much larger. Per the company, in “less than a year” the company’s “trading volume” grew by 12x and its “net revenue” grew 46x. That’s a lot.
- Privacera also raised $50 million this week. Insight Partners led the round. The deal caught my eye as it promised a “cloud-based data governance and security solution.” That reminded me of Skyflow, a quickly-growing startup that I thought might have a similar product. Privacera CEO Balaji Ganesan politely corrected my confusion in an email saying that “Skyflow is like a vault for customer data. They replace customer data with tokens. Our focus is on data governance, so it is broader. We don’t store customer data within our solution.” Fair enough. It’s still an interesting space.
- And then there’s Woflow, which VentureBeat actually got to before I could. I chatted with the company this week, but sadly have more notes than open word count today. So let it suffice to say that the company’s model of selling structured merchant data is super cool. And the fact that it has linked up with customers in its first vertical (restaurants) like DoorDash is impressive.
- Its round was led by Craft Ventures, a firm that has been pretty damn active in the API-powered startup landscape in recent months. More to come on Woflow.
Various and Sundry
Closing, I learned a lot about software valuations here, got to noodle on the epic Roblox direct listing here, dug into fintech’s venture successes and weaknesses, and checked out the Global-e IPO filing. Oh, and M1 Finance raised again, while Clara and Arist raised small, but fun rounds.
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There is infinite money for stock-trading startups
Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s broadly based on the daily column that appears on Extra Crunch, but free, and made for your weekend reading. Want it in your inbox every Saturday morning? Sign up here.
Ready? Let’s talk money, startups and spicy IPO rumors.
Earlier this week TechCrunch broke the news that Public, a consumer stock trading service, was in the process of raising more money. Business Insider quickly filled in details surrounding the round, that it could be around $200 million at a valuation of $1.2 billion. Tiger could lead.
Public wants to be the anti-Robinhood. With a focus on social, and a recent move away from generating payment for order flow (PFOF) revenues that have driven Robinhood’s business model, and attracted criticism, Public has laid its bets. And investors, in the wake of its rival’s troubles, are ready to make it a unicorn.
Of course, the Public round comes on the heels of Robinhood’s epic $3.4 billion raise, a deal that was shocking for both its scale and speed. The trading service’s investors came in force to ensure it had the capital it needed to continue supporting consumer trades. Thanks to Robinhood’s strong Q4 2020 results, and implied growth in Q1 2021, the boosted investment made sense.
As does the Public money, provided that 1) The company is seeing lots of user growth, and 2) That it figures out its forever business model in time. We cannot comment on the second, but we can say a bit about the first point.
Thanks not to Public, really, but M1 Finance, a Midwest-based consumer fintech that has a stock-buying function amongst its other services (more on it here). It told TechCrunch that it saw a quadrupling of signups in January as compared to December. And in the last two weeks, it saw six times as many signups as the preceding two weeks.
Given that M1 doesn’t allow for trading — something that its team repeatedly stressed in notes to TechCrunch — we can’t draw a perfect line between M1 and Public and Robinhood, but we can infer that there is huge consumer interest in investing of late. Which helps explain why Public, which is hunting up a way to generate long-term incomes, can raise another round just months after it closed a different investment.
Our notes last year on how savings and investing were the new thing last year are accidentally becoming even more true than we expected.
Market Notes
As the week came to a close, Coupang filed to go public. You can read our first look here, but it’s going to be big news. Also on the IPO beat, Matterport is going out via a SPAC, I chatted with Metromile CEO Dan Preston about his insurtech public offering this week that also came via a SPAC, and so on.
Oscar Health filed, and it doesn’t look super strong. So its impending valuation is going to test public traders. That’s not a problem that Bumble had when it priced above-range this week and then skyrocketed after it started to trade. Natasha and I (she’s on Equity, as well) have some notes from Bumble CEO Whitney Wolfe Herd that we’ll get to you early next week. (Also I chatted about the IPO with the BBC a few times, which was neat, the first of which you can check out here if you’d like.)
Roblox’s impending public debut was also back in the news this week. The company was a bit bigger than it thought last year (cool), but may delay its direct listing to March (not cool).
Near to the IPO beat, Carta started to allow its own shares to trade recently, on the back of news that its revenues have scaled to around $150 million. Not bad Carta, but how about a real IPO instead of staying private? The company’s valuation more than doubled during the secondary transitions.
And then there were so very many cool venture capital rounds that I couldn’t get to this week. This Koa Health round, for example. And whatever this Slync.io news is. (If you want some earlier-stage stuff, check out recent rounds from Treinta, Level, Ramp and Monte Carlo.
And to close, a small callout to Ontic, which provides “protective intelligence software” and said that its revenue grew 177% last year. I appreciate the sharing of the numbers, so wanted to highlight the figure.
Various and Sundry
Wrapping this week, I have a final bit for you to chew on from Mark Mader, the CEO of Smartsheet, a public company — former startup, it’s worth noting — that plays in the no-code, automation and collaboration markets. That’s a rough summary. Anyhoo, I asked Mader about no-code trends in 2021, as I have my eyes on the space. Here’s what he wrote for us:
If you thought the sudden shift to remote work sped up corporate America’s shift to digital, you haven’t seen anything yet. Digital transformation is going to accelerate even more rapidly in 2021. Last year, the workforce was exposed to many different types of technology all at once. For example, a company may have deployed Zoom or DocuSign for the first time. But much of this shift involved taking analog processes like meetings or document signing and approval and bringing them online. Things like this are merely a first step. 2021 is the year the companies will begin to connect large-scale digital events to infrastructure that can make them automated and repeatable. It’s the difference between one person signing a document and hundreds of people signing hundreds of documents, with different rules for each one. And that’s just one example. Another use case could involve linking HR software to project management software for automated, real-time resource allocation that allows a company to get more out of both platforms, as well as its people. The businesses that can automate and simplify complex workflows like these will see dramatically improved efficiency and return on their technology investments, putting them on the path to true transformation and improved profitability.
We shall see!
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Robinhood’s pain is Public’s gain as VCs rush to give it more money
Public.com, a social-focused free stock trading service, is nearing the close of a Series D just two months after raising a $65 million Series C, sources familiar with the matter told TechCrunch.
The San Francisco-based fintech aims to give people the ability to invest in companies using any amount of money, with a focus on community activity over active trading. It competes with Robinhood, M1 Finance and other American fintech companies that offer consumers a way to invest in equities with low or zero fees.
Public.com apparently got a flurry of investor interest over the past couple of weeks after Robinhood found itself in hot water and essentially raised $3.4 billion in a matter of days to help get itself out of a mess.
That new capital came at a challenging time for the unicorn, which could pursue an IPO this year. And some investors reportedly want a piece of rival Public.com’s pie.
One source told TechCrunch that many of those offering term sheets believe there could be “a mass exodus from Robinhood” and want a way to capture that value.
Public recently shook up its business model, moving from generating revenue from order flow payments, a key way that Robinhood monetizes, to collecting tips from users in exchange for executing their orders. Payment for order flow, or PFOF, has become a touchstone in the debate surrounding low-cost trading platforms, and how users may pay for their transactions if not in direct fees.
Investors betting on Public, then, would be placing a wager on not merely future user growth, but the startup’s ability to monetize effectively in the future.
The sources for this story were granted anonymity due to the sensitivity of the discussions.
Public grew quickly in 2020, expanding its user base by a multiple of 10 since the start of the year.
Co-founder Leif Abraham told TC’s Alex Wilhelm in December that the company’s growth has been consistent instead of lumpy, expanding at around 30% each month. The co-founder also stressed that most of Public’s users find its service organically, implying that the startup’s marketing costs have not been extreme, nor its growth artificially boosted.
We don’t know yet how much Public is raising in its Series D, or who all is investing. Public has not responded to multiple requests for comment. VC firm Accel — which led its Series A, B and C rounds — also declined to comment. But we’ll definitely report details as we get them.
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M1 Finance closes $45M Series C mere months after it raised its $33M Series B
Just months after it announced a $33 million Series B, Chicago-based M1 Finance today disclosed a $45 Series C.
The new financing event was led by Left Lane Capital, the same investor that led M1’s Series B. Bear in mind that so-called inside rounds are now a bullish sign in 2020, as opposed to in prior VC eras when they were viewed more cooly. Other M1 investors include Jump Capital, Clocktower Technology Ventures and Chicago Ventures, though only the first two appear to have taken part in this round.
Per M1, the Series C comes just 120 days after it raised a Series B. A good question is why M1 has raised more capital, and why Left Lane Capital wanted to lead two rounds for the consumer-focused fintech provider. Going back to our prior coverage, we can figure it out.
In February, we reported that M1 Finance had reached the $1 billion assets under management mark, or AUM.
The startup combines three different traditional fintech services into one (roboadvising, neobanking and lending), allowing it to price the package aggressively. The model appears to be working. When M1 raised its Series B a few months later in June, it had reached the $1.45 billion AUM, or about 45% growth in just over a quarter. That’s very good.
Today, the company announced that it has surpassed the $2 billion AUM mark, up more than 38% in the last four months.
M1 posted slower AUM growth in percentage terms and greater growth in raw AUM over a similar time frame heading into its Series C. But regardless of that nuance, the company’s AUM grew quickly.
That fact helps explain its new round. If you were Left Lane Capital, had just led a round into the company, and then watched it keep growing rapidly, you’d want to double-down quickly. Not only to buy more of the company, but also to get the round done before another investor could show up and buy its own piece of M1, diluting you and nabbing your ascendant position as the startup’s most recent lead investor.
So Left Lane led the Series C, hoping that M1 keeps growing like the proverbial garden irritant.
Revenue, growth
Something fun about M1 is that it shared a revenue target as a percent of AUM earlier in the year, namely that it aims to generate around 1% of its AUM in revenue each year. The company’s CEO Brian Barnes re-confirmed the number for TechCrunch this week.
So, with more than $2 billion in AUM, we can see that M1’s revenues are probably on a run rate of more than $20 million today, and could crest a $25 million run rate by the end of the year, provided that growth continues as it has for the startup.
How is M1 adding so much capital to its platform? Barnes told TechCrunch that M1 has tripled its userbase since the start of the year, and that its current users are bringing more funds in from other financial platforms. The combination is making M1 larger, and quickly.
To wrap, our notes above about Left Lane probably wanting to lead the Series C to keep some other firm from doing it — pre-emption is a regular thing in today’s hot VC market — weren’t mere idle speculation. Barnes told TechCrunch in response to a question about its Series C that his company was “fortunate to have significant investor demand for our Series C, partly due to hitting milestones as quickly” as it has. That sounds like the possibility of competing lead investors to us, at least from our present remove.
The M1 round continues the savings and investing boom we’ve tracked this year. And the round is a win for the Midwest at the same time. More when M1 reaches $3 billion in AUM. Start your countdown.
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Robinhood raises $280M, pushing its valuation to $8.3B
As expected, Robinhood has closed a new round of capital. The late-stage, consumer investing app announced today that it has closed a $280 million Series F funding at an $8.3 billion valuation. This closely tracks prior coverage that the firm was hunting for a nine-figure round at a valuation of around $8 billion.
Robinhood raised capital several times in 2019, including a $323 million mid-year Series E that valued the firm at around $7.6 billion, counting the value of the investment.
The valuation gains that the Menlo Park, Calif.-based unicorn has enjoyed over time are slowing. The firm’s 2017 Series C valued it at around $1.3 billion. That rose to around $5.6 billion the next year when it raised $363 million in its Series D. The firm’s Series E’s $7.6 billion valuation was strong, then, but a deceleration. And today’s $8.3 billion valuation brings its slimmest valuation gain in years.
It seems likely that Robinhood is growing into its valuation as it scales. According to its blog post, Robinhood has added 3 million accounts this year.
According to Bloomberg, which broke the news of the firm’s then-impending funding round, Robinhood recorded around $60 million in revenue this March, three times its February result. It is unclear if the firm can continue that pace of revenue generation during the remainder of 2020, but Robinhood’s trailing valuation multiple would decline sharply if the feat was possible. (Revenue multiples are broadly contracting as the economy slows, and investors project slower growth amongst startups.)
But while Robinhood is caught in an updraft that is lifting the fortunes of many savings and investing apps, its road has not been entirely smooth this year.
Growing pains
Robinhood made headlines in March with less fortuitous news: three outages in two weeks. An outage, in the company’s case, means that consumers were unable to trade during specific hours due to technical difficulties. As the financial services startup handles people’s money — often tied to specific market movements — making any disruption to its operations the opposite of good news.
The stability of apps that handle your money is especially important right now, as people try to get their financial health in order amid rising unemployment and an uncertain future economy at large, let alone the stock market.
We don’t know whether the round was closed before the outages and before COVID-19, but we wouldn’t be surprised if discussions were underway months earlier. (We asked; Robinhood declined to comment.)
It’s worth noting that when Robinhood suffered its first massive outage, its co-CEOs noted that the cause was largely due to a stress on infrastructure due to an unprecedented load of usage.
Robinhood has spent time in the last few weeks figuring out how to handle another increases in usage — sensibly, the new capital will be used to build out capabilities and prevent future crashes. (The company said in its announcement that it intends to “continue to invest in scaling our platform.”)
It’s going to need that platform stability if the market keeps moving as swiftly toward its portion of the fintech world as it has in the last few months.
A savings boom
Robinhood’s citing of “unprecedented load” as part of the cause of its difficulties drove some snark. It’s hard to fit a small brag into an apology, after all. But one thing TechCrunch has learned is that individuals are investing and saving during the pandemic.
Data for this abounds. Acorns, a savings and investing app, saw a record of signups on March 19, the same day that the company noted the stock market recorded their second-worst day of trading since 1987.
We’ve collected further data in the same vein, with Public (another free stock-trading app) reporting surging usage, and other fintech providers telling TechCrunch that more folks than ever are looking to save and buy stocks. Indeed, Robinhood later said that in March it saw “more than 10x net deposits” when compared to the monthly average it set in the last quarter of 2019.
The company, then, raised around a usage high. This makes its failure to generate a larger valuation premium nearly confusing; after all, when would there be a better time for it to raise? The answer appears to be that the same market dynamic that gave it a surge in demand (the pandemic) is likely also the reason that its valuation gains were slight (falling revenue multiples and falling private investor sentiment).
Sequoia Capital led the round, which saw participation from NEA, fintech-focused Ribbit and smaller firms 9Yards Capital and Unusual Ventures.
Other companies are riding the same fundraising wave. Last week, investing app Stash raised a $112 million round led by LendingTree. In its most recent quarter Stash claims it had an over 100% increase in weekly customer deposits across banking and investing.
There are no shortages of other investing platforms for consumers during this time, even if that looks like a traditional incumbent bank. With a new nine-figure round, Robinhood will have to prove that it is competitive, and more importantly, reliable.
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Chicago’s M1 Finance, a consumer-focused fintech platform, reaches $1B under management
Eagle-eyed readers will recall that we mentioned M1 Finance earlier today in our look at a few trends in the fintech industry. We’re back with the firm this afternoon as it has a bit of news that’s worth discussing.
Chicago-based M1 Finance announced today that it has reached the $1 billion assets under management mark, or AUM. Reaching AUM thresholds provides useful milestones that we can use to track the progress of various players in the fintech and finservices worlds.
M1 is an interesting company, bringing together a number of products to form a single platform. Its hybrid nature makes comparing its AUM to other companies’ histories a bit dicey. Still, for reference, Wealthfront, a roboadvisor, announced that it started 2013 with AUM of $100 million, and closed that year with $538 million. By mid-2014, Wealthfront had $1 billion AUM. Today it has over $20 billion.
So, the numbers matter, and reaching thresholds can help us understand where a company is in its maturity cycle.
Let’s talk about M1 Finance’s AUM growth, its revenue growth and its product model. It’s a neat company with a history of efficient growth.
Growth, product
We’ll start with product, as how the company approaches its feature-set helps explain how the service is priced, which in turn helps us grok the company’s growth.
M1 is not a roboadvisor, or a simple neobank, or a lending product; it’s all three at once, providing effectively the digital equivalent of a full-service bank, admittedly in the form of an online experience instead of a brick-and-mortar outlet. M1 users can open investment accounts, checking accounts, get a debit card and borrow money against their investment portfolios; it’s a cohesive feature set.
And one that lets M1 price its products lower as a group than it could individually. During a call with M1’s CEO Brian Barnes about the company’s AUM milestone, the executive connected the company’s long-term vision to its ability to price aggressively. (All fintechs are expanding their platforms, it’s worth noting, meaning that, in time, nearly every fintech player will offer an array of services; Wealthfront, famous for its work in roboadvising, now also offers savings and borrowing capabilities.)
Barnes said that M1 has long wanted to “manage the bulk of [its users’] financial assets, not create a sort of low-friction acquisition hook” to bring in smaller-dollar accounts. This, in turn, means that M1 can have higher per-user sums on its books, which, it appears, helped the company reduce prices on a per-product basis.
Here’s Barnes connecting per-account totals to pricing:
Managing more of someone’s financial assets, and financial life, is going to be more economical. What it allows us to do is maintain lower margins per product, but have enough margin on the entire financial relationship that we can build a very sustainable durable, long-lasting business.
That’s neat! And folks with lots of money expect low fees, especially in the Robinhood-era, so the setup probably helps with attracting users.
Revenue
Summing so far, M1 runs a broad set of financial products, attracting more dollars-per-user than other companies, perhaps, which lets it charge, in its view, lower prices.
How low? Barnes told TechCrunch that his company is “building [its] business model to make 1% of assets we manage [into] top line. So every billion bucks on the platform will be 10 million dollars in recurring revenue. And it is a relatively linear relationship.” The CEO later extended the point, saying that when his firm has $10 billion in AUM, it will generate $100 million.
This means that as M1 scales, we’ll be able to know with reasonable confidence how much revenue it’s driving.
The company charges in the manner you’d expect, with incomes from loaning money, interchange and a SaaS-product called M1 Plus that lowers some fees and provides interest on checking accounts, costing $125 yearly.
Now that M1 is big enough to matter, it has to double, and then double again. We’ll know how well that’s going based on how quickly the company reaches the $2 billion mark.
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