Michael Katchen, CEO of Wealthsimple.Nathan Denette/The Canadian Press
Some of Canada’s most famous celebrities have joined a landmark financing for online Canadian bank challenger Wealthsimple Technologies Inc., which announced a $750-million deal on Monday that is backed by some of Silicon Valley’s leading venture funds.
The transaction sees more than a dozen new venture-capital investors buy an ownership stake in Wealthsimple, including Dragoneer Investment Group, DST Global, Redpoint Ventures, Steadfast, TSV, Iconiq Capital, Alkeon Capital, Base 10, Plus Capital and Canada’s Inovia Capital, as well as existing investors Allianz X and TCV. Power Corp. of Canada subsidiary Sagard Holdings will also participate in the round.
The deal includes celebrities as well, such as Toronto rapper Drake, actors Michael J. Fox and Ryan Reynolds, professional basketball players Kelly Olynyk and Dwight Powell, and NHL player Patrick Marleau.
The announcement on Monday confirmed many details first reported by The Globe and Mail on Sunday about Wealthsimple’s talks with several U.S. venture-capital firms to raise more than $700-million.
The deal is being led by past investors and U.S. venture-capital heavyweights Greylock Partners and Meritech Capital Partners.
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The landmark financing values the company, which is led by CEO Mike Katchen, at $5-billion, making the Toronto-based online bank one of Canada’s most highly valued private technology companies.
“Meritech and Greylock ... are leading a $750-million investment round to help Wealthsimple do what we always believed it could: revolutionize the way we do money, and become the biggest consumer finance company in Canada in the process,” Mr. Katchen wrote in a blog post on Monday.
The substantial bump in valuation – up from $1.4-billion just seven months ago, when Wealthsimple raised $114-million – cements the firm’s status as a serious challenger to incumbent financial giants, particularly in the online trading industry.
The deal is expected to close mid-May, and will see Max Motschwiller, a general partner at Meritech, join Wealthsimple’s board of directors.
“We invest in companies with the potential to revolutionize industries and become enduring market leaders,” Mr. Motschwiller said in a statement.
“Wealthsimple has been able to capture a generation of financial consumers in Canada with financial products that are markedly different than anything offered by the incumbents – simpler, more human and built with the kind of technology that delivers an experience consumers want.”
Wealthsimple’s roots are in the so-called “robo-adviser” market, providing automated wealth management services over the internet that quickly design an investor’s portfolio based on age, financial goals and risk tolerance.
Over the past several years, Wealthsimple has expanded beyond digital portfolio management services, adding a high-interest savings account and a tax-filing service. But the biggest driver of growth recently has been its online stock-trading platform, Wealthsimple trade, launched in 2018, which charges zero trading commissions on stocks and ETFs and offers direct access to cryptocurrencies.
Iconiq, which manages funds from U.S. tech billionaires including Facebook Inc.’s Mark Zuckerberg and Sheryl Sandberg, is familiar with the recent surge in online investing.
The company is already an investor in Robinhood Markets Inc., the U.S. online trading platform that has spiked in popularity and announced three months ago it had raised US$3.4-billion in fresh capital.
Wealthsimple’s latest round comes during the company’s biggest period of growth to date in its seven years in business.
Last year, Wealthsimple’s assets under management nearly doubled to $9.7-billion compared with 2019, according to securities filings by Power Corp., its largest shareholder.
Wealthsimple says it now has more than one million clients, excluding tax clients, across all its markets. With zero commissions on its trading platform, the company makes money off currency conversion fees – charging investors a 1.5-per-cent fee on all U.S. buy and sell trades.
But unlike Robinhood in the U.S. and other platforms, Wealthsimple hasn’t bought into derivatives trading, making it more conservative and durable should the derivatives craze in U.S. markets over the past year among retail investors subside.
The new raise validates Power’s big push into alternative investing and its embrace of disruptive financial technology startups.
Several Power-controlled entities – Power Financial Corp., wealth management firm IGM Financial Inc. , insurer Great-West Lifeco and VC firm Portag3 Ventures – have collectively invested $315-million in Wealthsimple in five of its six previous financings from 2015 to 2019. The fifth financing, in 2019, was led by the digital investment arm of German insurer Allianz Group.
Of the $750-million raised in the new offering, two-thirds will be used to buy part of Power’s stake, although it will still remain the largest shareholder. The Power group of companies will receive $500-million, with the remaining $250-million being a direct equity investment in Wealthsimple.
IGM and other Power affiliates will reduce their respective stakes in Wealthsimple as a result of the offering.
Currently, Power holds 61.7 per cent of Wealthsimple’s equity and has 85.3-per-cent voting control. The value of those investments was $934-million at the end of 2020, or close to three times the amount invested, representing an internal rate of return of 44 per cent, according to securities filings by Power.
Post-financing, Power Corp., through a variety of its entities, will have a 43-per-cent total equity interest, and 60-per-cent voting control.
IGM currently is the largest single shareholder in Wealthsimple and owns 36 per cent. That will drop to 23 per cent.
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