titan
Auto Added by WPeMatico
Titan nabs $12.5M for ‘next generation’ investment management
Titan, a startup that is building a retail investment management platform aimed at millennials, has closed on $12.5 million in a Series A round led by VC heavyweight General Catalyst.
A bevy of other investors put money in the round, including Sound Ventures (actor Ashton Kutcher and Guy Oseary’s VC firm), Scribble VC, BoxGroup, Y Combinator, South Park Commons, Instagram founder Mike Krieger, Lee Fixel and others.
Titan is hoping to build on the momentum it saw in 2020, during which it grew revenue, customers and assets under management by 600%, “with effectively no marketing budget, according to co-founder Joe Percoco. The New York-based company says it’s approaching $500 million in assets under management and was cash flow positive last year.
Percoco met co-CEO Clay Gardner while the pair were at the Wharton School of the University of Pennsylvania.
“We came from two different backgrounds with respect to investing,” Percoco recalled. “He was the type that bought his first shares of stock at the ages of 11 and 12. I’m the exact opposite and couldn’t invest myself until after Goldman Sachs, where I went to work after Penn.”
Because the duo both worked in the industry, they found that friends and family were always asking them how they should manage their capital.
“We were sending them to ETFs and mutual funds in our day jobs,” Percoco said. “But we realized they did not have the same access to investing that the wealthier did.”
Frustrated with only helping the rich get richer, the pair founded Titan in 2017 with the goal of disrupting what they viewed as “an archaic industry. They’ve since built an operating system aimed at giving “everyday investors access to the types of investment products and experiences that they’ve historically been locked out of.” Or, as they describe, it a mobile version of what investment giants Fidelity and BlackRock created decades ago.
Titan’s capital management platform is designed for both accredited and unaccredited investors. The company says it provides access to services that would historically require a $1 million minimum, such as direct portfolio manager access. It charges a fee amounting to just 1% of assets, compared to the 2% – and in some cases 20% of profits – that legacy players charge.
“We believe Fidelity 2.0 will be direct-to-consumer with no walls and no black boxes,” Percoco said.
(For the unacquainted, according to Investopedia, black box accounting is the deliberate use of complex bookkeeping methodologies to make interpreting financial statements challenging and time-consuming.)
Its simplicity sets it apart. Titan chooses stocks via its “proprietary and discretionary” research process based on the principals’ previous experience.
The startup currently offers two stock-focused strategies on its platform,
One of those strategies, called Flagship, is focused on large cap growth. The other, called Opportunities, focuses on smaller, under-the-radar companies.
All clients have direct access to its investment team and investor relations via Titan’s mobile operating system. The company also offers instant deposits, personal digital vaults (or separately managed accounts), fractional share-trading, and no lock-ups.
Titan’s core customer is the young professional in the 25-35 age range.
“They’re already investing money somewhere, even if not that much of their money,” Gardner said. “But they’re well attuned to the reasons they should be… And, most asset management products remain in the Stone Age, offering 90-page prospectuses and black-box client experiences.”
As former TC editor Josh Constine explained when the company raised a $2.5 million seed round in October 2018, Titan differs from Robinhood or E*Trade, where users essentially are left to fend for themselves. But clients also have some control, unlike passive options such as Wealthfront and Betterment.
Looking ahead, Titan plans to use its new capital to scale its engineering and investment team, as well as make “significant investments” in product, marketing and operations. It also plans to launch several investment products across a variety of asset classes.
“Many legacy players are hungry to have an OS to serve more folks they historically could not,” Percoco said. “We’re getting inbounds from legacy players in the space seeking to manage capital for new generations and realizing it will shift to mobile operating systems like Titan’s. Eventually, we can enable them to build their own investment products on Titan.”
Katherine Boyle, partner at General Catalyst and Titan board member, said she was struck by Percoco and Gardner’s “deep empathy” for investors who are often overlooked — such as millennials and new investors “who have cash sitting in their checking accounts and want expert management but don’t know where to go.”
“They don’t want to be stock pickers but they don’t want a set-it-and-forget-it product,” Boyle said. “There’s another level of sophistication with actively managed products where the best managers are making investment decisions on behalf of those who can afford it. But there’s no reason why retail investors should be excluded from this model.”
She thinks Titan can capitalize on what she believes is millennials’ “deep lack of trust” in legacy institutions.
“We need new institutions like Titan to combat this lack of trust,” Boyle said. “And these new institutions need to have incentives that are aligned with their clients, not with hedge funds or banks.”
Powered by WPeMatico
Scared to trade stocks? Titan algorithmically invests for you
Titan could put an end to stock market FOMO. The app chooses the best 20 stocks by scraping top hedge fund data, adds some shorts based on your personal risk profile and puts your money to work. No worrying about market fluctuations or constantly rebalancing your portfolio. You don’t have to do anything, but can get smarter about stocks thanks to its in-app explanations and research reports. Titan wants to be the easiest way to invest in stocks for a mobile generation that wants an affordable coach to guide them through the market themselves.
“Our goal is to take things that aren’t accessible [in wealth management] and make them accessible, starting with hedge funds,” says Titan co-founder Joe Percoco. That potential to democratize one of the keys to financial mobility has won Titan a $2.5 million seed round from Y Combinator’s co-founder Paul Graham, president Sam Altman and partners including Gmail creator Paul Bucheit. The rest of the capital comes from Maverick Ventures, BoxGroup and Liquid2 Ventures.
“Titan is where investing meets virality,” says Graham. “Those are two very powerful forces.” Since TechCrunch broke the news of Titan’s launch in August, it’s doubled its assets under management to $20 million and hired its first non-founder engineer.
Now it’s launching in-app educational videos so stock market dummies can get up to speed if they want to understand where their money’s going amidst a swirling see of financial news. “There are so many different headlines telling so many different narratives,” Percoco tells me. “Everyone is searching for explanations in a voice they trust. An ‘ETF’ can’t talk back. Sometimes a human face is better than writing. A video can really help people make choices.” Here’s its two-minute video about Facebook’s Q2 earnings a few months ago, explaining why the share price crashed 25 percent:
Percoco and Clayton Gardner met on their first day of Wharton business school, while their third co-founder was earning a hedge fund patent and studying computer science at Stanford. They went on to work at hedge funds and private equity firms like Goldman Sachs, but got fed up just growing the fortunes of the already rich.
So they started Titan to invent a modern, mobile version of BlackRock, the investment giant founded in the 1980s. Titan uses the public disclosures of hedge funds to find consensus around the 20 best performing stocks. With as little as $1,000, users can let Titan robo-manage their investments for a 1 percent fee on assets. Users provide some info on how big they want to gamble, and Titan personalizes their portfolio with more or less conservative shorts to hedge their bets.
Titan’s simplicity combined with the sense of participation could help it grow quickly. It sits between do-it-yourself options like Robinhood or E*Trade, where you’re basically left to fend for yourself, and totally passive options like Wealthfront and Betterment, where you’re so divorced from your portfolio that you’re not learning. Managed hedge funds and fellow active investment vehicles like BlackRock with a human advisor can require a $100,000 minimum investment that’s too steep for millennials.
“Even the best hedge fund in the world is only going to send you a PDF every 90 days,” Percoco explains. But Titan doesn’t want you nervously checking your portfolio non-stop. “Our median user checks the app once per day.” That seems like a healthy balance between awareness and sanity. It thinks its education and informative push notifications make it worth a higher required investment and fees than Wealthfront charges.
Essentially, Titan is a stock trading auto-pilot merged with a flight simulator so you improve your finance skills without having to fear a crash. Percoco tells me the sense of accomplishment that engenders is why clients say they’re telling friends about Titan. “When I invest, I look for companies that are growing quickly and making a huge positive impact on the world. Titan is one of those companies,” investor Altman says. “I think they could improve the financial well-being of an entire generation.”
Powered by WPeMatico
Titan launches its mobile ‘not a hedge fund’
What Robinhood did to democratize buying individual stocks, Titan wants to do for investing in a managed portfolio. Instead of being restricted to rich accredited investors willing to pour $5,000 or even $500,000 into a traditional hedge fund that charges 2 percent fees and 20 percent of profits, Titan lets anyone invest as little as $1,000 for just a 1 percent fee on assets while keeping all the profits. Titan picks the top 20 stocks based on data mined from the most prestigious hedge funds, then invests your money directly in those with personalized shorts based on your risk profile.
Titan has more $10 million under management after quietly spinning up five months ago, and this week the startup graduates from Y Combinator. Now Titan is ready to give upscale millennials a more sophisticated way to play the markets.
This startup is hot. It refused to disclose its funding, likely in hopes of not tipping off competitors and incumbents to the opportunity it’s chasing. But it’s the buzz of YC, with several partners already investing their own money through Titan. When you consider Stanford-educated free stock-trading app Robinhood’s stunning $5.6 billion valuation thanks to its disruption of E*Trade, it’s easy to imagine why investors are eager to back Titan’s attack on other financial vehicles.
“We’re all 28 to 30 years old,” says co-founder Clayton Gardner about his team. “We want to actively invest and participate in the market but most of us who don’t have experience have no idea what we’re doing.” Most younger investors end up turning to family, friends or Reddit for unreliable advice. But Titan lets them instantly buy the most reputable stocks without having to stay glued to market tickers, while using an app to cut out the costs of pricey brokers and Wall Street offices.
Titan co-founders (from left): Max Bernardy, Joe Percoco, Clayton Gardner
“We all came from the world of having worked at hedge funds and private equity firms like Goldman Sachs. We spent five years doing that and ultimately were very frustrated that the experiences and products we were building for wealthy people were completely inaccessible to people who weren’t rich or didn’t have a fancy suit,” Gardner recalls. “Instead of charging high fees, we can use software to bring the products directly to consumers.”
How Titan works
Titan wants to build BlackRock for a new generation, but its origin is much more traditional. Gardner and his co-founder Joe Percoco met on their first day of business school at UPenn’s Wharton (of course). Meanwhile, Titan’s third co-founder, Max Bernardy, was studying computer science at Stanford before earning a patent in hedge fund software and doing engineering at a few startups. The unfortunate fact is the world of finance is dominated by alumni from these schools. Titan will enjoy the classic privilege of industry connections as it tries to carve out a client base for a fresh product.
“We were frustrated that millennials only have two options for investing: buying and selling stocks themselves or investing in a market-weighted index,” says Gardner. “We’re building the third.”
Titan’s first product isn’t technically a hedge fund, but it’s built like one. It piggybacks off the big hedgies that have to report their holdings. Titan uses its software to determine which are the top 20 stocks across these funds based on turnover, concentration and more. All users download the Titan iOS or Android app, fund their account and are automatically invested into fractional shares of the same 20 stocks.
Titan earns a 1 percent annual fee on what you invest. There is a minimum $1,000 investment, so some younger adults may be below the bar. “We’re targeting a more premium millennial for start. A lot of our early users are in the tech field and are already investing,” says Gardner.
For downside protection, Titan collects information about its users to assess their risk tolerance and hedge their investment by shorting the market index 0 to 20 percent so they’ll earn some if everything crashes. Rather than Titan controlling the assets itself, an industry favorite custodian called Apex keeps them secure. The app uses 256-bit encryption and SSL for data transfers, and funds are insured up to $500,000.
How have its bets and traction been doing? “We’ve been pleasantly surprised so far,” Gardner beams, noting Titan’s thousands of clients. It claims it’s up 10 percent year-to-date and up 33 percent in one year compared to the S&P 500’s 2 percent year-to-date and 22 percent in one year. Since users can pull out their funds in three to four business days, Titan is incentivized to properly manage the portfolio or clients will bail.
But beyond the demographic and business model, it’s the educational elements that set Titan apart. Users don’t have to hunt online for investment research. Titan compiles it into deep dives into top stocks like Amazon or Comcast, laying out investment theses for why you should want your money in “the everything store” or “a toll road for the Internet.” Through in-app videos, push notifications and reports, Titan tries to make its users smarter, not just richer.
With time and funding, “Eventually we hope to launch other financial products, including crypto, bonds, international equities, etc.,” Percoco tells me. That could put Titan on a collision course with Wealthfront, Coinbase and the recently crypto-equipped Robinhood, as well as direct competitors like asset managers BlackRock and JP Morgan.
“If we fast-forward 10 to 20 years in the future, millennials will have inherited $10 trillion, and at this rate they’re not equipped to handle that money,” says Gardner. “Financial management isn’t something taught in school.”
Worryingly, when I ask what they see as the top threats to Titan, the co-founders exhibited some Ivy League hubris, with Gardner telling me, “Nothing that jumps out…” Back in reality, building software that reliably prints money is no easy feat. A security failure or big drop could crater the app’s brand. And if its education materials are too frothy, they could instill blind confidence in younger investors without the cash to sustain sizable losses. Competitors like Robinhood could try to swoop in an offer managed portfolios.
Hopefully if finance democratization tools like Titan and Robinhood succeed in helping the next generations gather wealth, a new crop of families will be able to afford the pricey tuitions that reared these startups’ teams. While automation might subsume labor’s wages and roll that capital up to corporate oligarchs, software like Titan could boost financial inclusion. To the already savvy, 1 percent might seem like a steep fee, but it buys the convenience to make the stock market more accessible.
Powered by WPeMatico