Power unit Wealthsimple raises $114-million from venture capital giants, valuation tops $1-billion

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Wealthsimple Technologies Inc. has taken a major step out from under the shadow of controlling shareholder Power Corp. of Canada, attracting $114-million in financing from some of Silicon Valley’s best-known venture capital firms in a deal that values the online financial services company at $1.4-billion.

The six-year-old company will announce Wednesday that its latest equity funding round – the first in which Power has not played a role at all – was led by TCV, one of the technology sector’s top private-capital investors and a past backer of Facebook, Netflix, Spotify and Airbnb. Other venture funds in the round include Greylock, which backed LinkedIn and Airbnb; and Meritech Capital, an early funder of Salesforce and cloud-computing company Snowflake.

With the investment, Wealthsimple has achieved the rare, so-called “unicorn” status, meaning the startup has achieved a private valuation of US$1-billion or more. But it has also done so by attracting support from some of Silicon Valley’s best-known investors, following long-standing questions about Power’s heavy support for the firm. Power and two affiliate companies have previously invested $315-million in Wealthsimple, giving it a 70.1-per-cent ownership stake prior to this financing.

With the new money, Power’s stake in Wealthsimple falls to 61.7 per cent, as the new investors take a collective 7.3-per-cent equity ownership, and a 9.6-per-cent voting control of the company.

The latest investment is one of the biggest external validations yet of Power’s big push into alternative investing and particularly its embrace of disruptive financial technology startups to help deliver meaningful returns to long-disgruntled shareholders of the Montreal financial-services conglomerate.

“When people perceive us as eating our own cooking, there is a certain amount of doubt to the story,” said Paul Desmarais III, an executive vice-president with Power, and also chairman of Wealthsimple. “But when you have three of the leading tech brands in the world saying ‘Hey, this is unique,’ it validates our story.”

As reported earlier by The Globe, Wealthsimple had been in talks with several U.S. venture capital firms to raise over $100-million with several interested parties. In an interview with The Globe on Tuesday, Wealthsimple chief executive officer Michael Katchen confirmed the company had received at least eight proposals from U.S. venture capital firms seeking to lead the investment round.

With $8.4-billion in assets under management, Wealthsimple provides automated wealth management services that quickly design an investor’s portfolio based on age, financial goals and risk tolerance. The company has expanded those services over the years, adding a high-interest savings account, a tax-filing service and an online stock-trading platform.

Wednesday’s investment follows several months of increasingly rampant online trading activity among do-it-yourself retail investors. The spike in demand saw Wealthsimple account for 18 per cent of new trading accounts in Canada in the second quarter, according to research company Investor Economics.

Mr. Katchen said the interest from U.S. players – combined with reaching unicorn status – makes him feel “validated” in the eyes of those in the industry who thought the company was completely dependent on Power.

“This is a big deal not just for Wealthsimple, but for Canadian tech,” he said in an interview. “There aren’t many unicorn companies in Canada, and given the unique way we financed the company, a lot of people might have considered us just another arm of Power.”

This is Wealthsimple’s sixth round of financing since 2015. Power and its affiliates led the first four rounds, and contributed half of a $100-million financing last year that was led by Wealthsimple’s first independent investor, Allianz X, the digital investment arm of Germany-based Allianz Group.

Mr. Katchen said he had been looking to raise non-Power capital as it would increase investor confidence as the company works toward an eventual initial public offering.

The investment round will also see David Yuan, general partner at TCV, join Wealthsimple’s board of directors.

Both TCV and Greylock have backed a handful of Canadian companies in the past, while Wealthsimple represents Meritech’s first investment in Canada.

Mr. Yuan said TCV had been tracking Wealthsimple since 2015 but began to take a closer over the past two years as it began to expand its products, which he called "super simple, intuitive and quite affordable. I think that resonates really well with [Canadians] given the financial services landscape.”

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