Banking giant UBS announced earlier today that it will purchase venture-backed robo-advisor Wealthfront in an all-cash transaction worth $1.4 billion.
Wealthfront, which raised just north of $200 million while private, per Crunchbase data, is one of a few wealth management services that grew on the back of offering automatic investing tools to consumers. Betterment ($435 million in funding, per Crunchbase) and Personal Capital ($265 million in raised capital, according to the same data source) are other related plays.
The $1.4 billion price tag for the UBS-Wealthfront deal matters, then, as it could impact the exit values for not only other startups, but also hundreds of millions of dollars worth of invested venture capital.
It’s hard to say with complete confidence whether the sale price Wealthfront managed to command was a strong win for its backers. PitchBook data estimates that the company was worth $700 million in 2014 and $500 million in late 2017 when it raised its last known round of capital, a $75 million sum.
At those prices, the company’s exit price is a win in that it represents a 2x or greater multiple on its final private valuations. But its exit value is also parsable from a number of alternative perspectives: AUM, customers and revenue. We’ll explore each briefly to get a better grip on how the company was valued in its sale, and what UBS is getting out of the deal.
AUM, customers, and revenue
In its release, UBS said that Wealthfront has “over $27 billion in assets under management,” or AUM. That means that UBS is paying around 5 cents per dollar in AUM at the company. Is that a lot?
Yes and no. Recall that M1 Finance, a related consumer-facing fintech that had an explosive period of AUM expansion during the COVID-19 pandemic’s first few years, has a long-term target of accruing a 1% take-rate for funds that it manages. That means that each $1 billion in AUM at M1 is earmarked by the company to generate $10 million in revenue per year, if its model works out as intended.
Wealthfront, in contrast, charges a 0.25% fee for managed assets, or around a fourth of what M1 is targeting. Before angry emails come in, I am not saying that M1 costs four times as much as Wealthfront; instead, the former was polite enough to share its revenue targets, which we are somewhat unfairly comparing to Wealthfront’s complete pricing model, which is concrete and public. So, we’re apples::oranges here on purpose.
Why compare and contrast the two companies? Because at a slimmer revenue base per dollar of AUM, Wealthfront likely generates annual revenue of around $67.5 million. If the company took more as a cut of consumer funds — such as M1 hopes to generate from an array of services — it would enjoy a much larger revenue base. Not all AUM is equal, in other words, so our AUM value calculation is useful in terms of comparing Wealthfront’s exit to other robo-advisors, but perhaps not much more than that.
Revenue is a more durable thing to lean on. At $1.4 billion in AUM and a presumed run rate of around $67 million, Wealthfront is being sold for around 21x its current yearly revenue base. That’s a SaaS-style multiple, which I did not anticipate companies in this cohort could command (given presumably lower gross margins and less net-dollar retention than what B2B software companies can command as a general rule). So, the company’s exit price feels strong from a revenue perspective, tricky AUM math aside.
Finally, customers. Wealthfront has, per UBS, “470,000 clients in the U.S.” UBS is therefore buying nearly a half-million customers for $1.4 billion, or around $3,000 each. By itself, that sounds expensive, but with the continuing revenue results that Wealthfront is putting up, it may be a number that is not exorbitant.
Given that the robo-advisor boom was some time ago, the overall exit picture for Wealthfront seems pretty solid. I think a $1 billion price tag would have been just fine, while anything too much greater would have veered into the realm of the expensive.
Related companies — the M1s, Personal Capitals and the like — now have some exit multiples to apply to their own AUM, revenue and customer bases. Let’s see if this deal shakes loose a few more.
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