Taking on Schwab, Robinhood and Wealthfront, the VCs continue to throw money – now $ 153 million – at M1 Finance that it doesn’t need to burn

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Latest $ 75 million venture capital comes after spike in growth, M1 says, correlates with weary Robinhood investors after GameStop fiasco

Brooke’s Note: All PR is good PR. It’s a journalist’s selfish spiel to get editorial attention. But it also has its plausible points of proof. No sooner had M1 risen to prominence for a crash with Wealthfront (we had never heard of it before at RIABiz), than he raised $ 75 million in a D round. barely touched his turn B. Do the math. It’s a big change. Of course, there’s more to the story, hence the article below, although Coatue and other VCs love them. M1 is growing, and, yes, he says internally that he sees a strong correlation in the timing of his peak growth with Robinhood’s GameStop struggles. As the most prominent online broker on the planet decides who he is and when to stop the game of insane trading on his platform, M1 says he’s ready to eat his lunch. See: Robinhood allegedly implied a fiduciary duty to newbie investors in marketing its ‘game type’ trading app, even though it is a FINRA regulated securities broker, new class action charges.

M1 Finance just raised $ 75 million shortly after raising the thorns of Wealthfront and – he claims – is doing a land office business with disgruntled Robinhood investors fleeing after the GameStop controversy. See: Wealthfront calls on M1 Finance.

David Goldstone: This increase will put pressure on M1 to maintain rapid growth.

Chicago’s robo-advisor, which allows investors to drive in the background, announced its latest raise on March 9 and quickly outlined plans to double its workforce to 300, after tripling it in 2020.

“[M1’s] the vision is to dominate the self-directed space with an application positioned like the super SoFi [a burgeoning neo-bank] and as the antithesis of Robinhood, ”said Will Trout, director of wealth management at Pleasanton, Calif., consultant, Javelin Strategy & Research, via email.

M1’s goal, say its executives, is to be the Charles Schwab & Co. of the next generation – making it all cheaper and silkier.

“M1 believes it can do better with lower costs, a more modern platform and integrated tools for all of the clients’ financial needs. No one is saying it’s a five-year vision – it’s a very long term, everything was, and is, with Schwab, ”said Bob Armor, chief marketing officer.

“We can be a next generation Charles Schwab,” Brian Barnes, founder and CEO of M1, told BusinessInsider. “We want to go after the banks. We don’t want you to mess around with the JPMorgans, the Wells Fargos, the Bank of Americas.”

Anti-Robinhood

What M1 hopes to capture is the desire for a forward-thinking brand and mobile technology, but without the aura of an online casino sometimes attributed to Robinhood, says Trout.

Trout
Will Trout: ‘[M1’s] the vision is to dominate the self-directed space. ‘

“This [goal] will mean discouraging day traders and ensuring a seamless user experience, defined by the absence of crashes or outages, hence the need to hire an army of engineers and marketers, ”he explains.

The company’s decision to double its workforce is also tied to its attempt to become anti-Robinhood, Trout continues.

Software engineers and product management positions will make up the majority of M1’s new hires, though it will also join its customer support team, according to the company.

M1 will likely add cryptocurrency trading at a future date, Trout predicts.

David Goldstone, head of research for Backend Benchmarking, an analytics company in Martinsville, NJ, also expects M1 to add new robot-like managed accounts and financial advice.

Barnes, in a Release, has played a lot on its online competitor.

“Our goal is to improve our clients’ finances, as opposed to their financial entertainment,” he says. “Wealth is built through long-term ownership, not playing on short-term price movements.”

$ 10 billion goal

Client M1 has grown its assets nearly five times since the start of 2020, from $ 800 million in January to nearly $ 4 billion by year-end. The goal is to reach $ 10 billion in customer assets by the end of 2021

“We are growing in all areas of our business,” said Amour.

But if M1 hopes to reach $ 10 billion in client assets by January 2022, it is expected to triple its monthly asset inflow, Goldstone says.

The feat is made all the more difficult by the fact that its 12 months of mind-blowing asset gains may soon recede.

“M1 may very well have a hard time sustaining this growth rate. It is easier to go from 100,000 users to 500,000 users than it is to go from one million users to five million,” he said via e- mail.

For now, the company is only seeing growth. “There is no evidence of a cap anytime soon,” Armor retorts.

Slice the apple

M1 has already gained a huge advantage over Robinhood, which is that he is untouched by the GameStop controversy.

Bob Armor
Bob Armor: M1 thinks he can do better [than Schwab].

Robinhood faces lawsuits and regulatory review after briefly banning outraged customers from trading GameStop and other actions in February.

“The growth schedule mentioned in the [latest] the version reflects that, ”says Armor.

M1 advertises itself as “no charge” to customers as it does not charge any commissions or fees based on assets under management for its basic service.

But it takes two bites of apple on the back.

Like Robinhood, he is paid by market makers for order flow, and like Schwab, it lends securities to short sellers (limited to 5% of its assets), collects spreads on deposits, collects debit card transaction fees from traders and earns interest from investors who borrow using their securities as collateral.

The free service includes one trading window per day, access to portfolios to build your own or rebalance, a debit account, and the ability to get personal loans.

Up to the task

For a Schwab-like annual subscription of $ 125, M1 customers also get a second daily trading window, lower loan rates, and 1% interest on cash.

Daniel Senft
Daniel Senft, who will serve on M1’s board of directors, expects the company to reach a market cap of $ 10 billion.

In contrast, Robinhood offers its customers standard and extended market hours.

Wealthfront’s automated investment service is discretionary, meaning that account holders cannot influence specific investment decisions or the execution of trades, according to his website blog.

Today, the company manages $ 23 billion, six and a half times the amount M1 oversees. New York robo-rival Betterment manages $ 27 billion.

M1 administers $ 3.5 billion in client assets, up from $ 3 billion in January and $ 1 billion last February, an increase of 350% in just 12 months, which equates to an average of $ 208 million. dollars of monthly asset growth.

All three offer banking services, but Wealthfront’s introduction of custom wallets and its potential offer for a banking charter have put it on a much closer collision course with M1. See: Wealthfront’s unlikely exploitation of signals from Sheila Bair and Tom Curry will likely push for bank charter, analysts say.

Wealthfront offers planning services. M1 has “no plan” to introduce consulting or planning services, Armor says. See: Wealthfront calls M1 Finance on pretext, but some experts see its damnation as low praise for a growing competitor

Big things

The company’s latest increase also brings its ‘barely touched’ war fund to nearly $ 153 million – an amount M1 has brought in on three rounds of funding in the past 12 months for a total of $ 173.2 million. dollars over the six rounds of funding.

Michel gilroy
Michael Gilroy: We research and invest in companies that we believe to be innovative, impactful and built for the long term.

Coatue Management, based in New York, led the $ 75 million Series D funding round. Clocktower Technology Ventures in Santa Monica, Calif., And Left Lane Capital in New York increased their holdings in the towers M1 series B and C series financing.

Oddly enough, M1 says he has no intention of dipping into the funds he just raised on his D turn – or even his C turn. Round B is practically intact.

“We had no intention of raising new capital. The D-series funding sets M1 up for big things,” he says.

The ultra-surplus capital fills a need in the high-stakes hiring process to show that resources are not objective, Barnes said.

M1 will also soon become a unicorn, or a company valued at over $ 1 billion, according to Barnes. “[We’re] get closer “, he said Business intern.

But even tons of uninvested capital is increasing the pressure, according to Goldstone.

“This increase will put pressure on M1 to maintain rapid growth,” he says.

IPO dream

Coatue’s decision to back M1 is the belief that it will eventually trade in the public markets with a market capitalization of at least $ 10 billion.

Indeed, Coatue’s senior managing partner, Daniel Senft, who will soon be joining M1’s board, insisted he had no interest in supporting a start-up that has not reached this market capitalization target, Barnes told BusinessInsider.

“A partner who supports this vision and who has a big portfolio to fund this vision over long periods of time… is a perfect partner,” he said.

“We research and invest in companies that we believe to be innovative, impactful and built on the long term … [and] M1 Finance has all of these characteristics, ”adds Michael Gilroy, general partner of Coatue, in a press release.

Led by billionaire investor and company founder Phillip Laffont, Coatue declined a request for comment.

Coatue may also have had a bonus look under the hood of the M1.

He recently participated in a $ 850 million investment led by SPAC in custodian Apex Clearing, the custodian of M1. See: After Reaching Nearly $ 100 Billion In Hold, Apex Clearing Closes “IPO” Deal To Raise “Up To” $ 1 Billion To Disrupt Existing RIA Guard.

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