Deals: PayPal Leads $30M Investment in Robo Adviser Acorns
By Telis Demos for WSJ Venture Capital
Acorns offers an app targeted at young investors, allowing users to deposit small amounts in a brokerage account that automatically buys a diversified group of exchange-traded funds.
The robo advisory company–online-only firms that make automated investment decisions for clients–has raised $30 million from PayPaland Rakuten Fintech Fund, a unit of the Japanese Internet firm, Acorns announced on Thursday. Early investors Greycroft Partners and e.Ventures are also participating in the fundraising round.
The investment doesn’t yet include any specific partnership between PayPal and Acorns, but the two firms see possible future integration with PayPal products such as its Venmo unit, the peer-to-peer money transfer app, and other PayPal accounts.
“There’s lots of potential between Acorns and Venmo, and Acorns and PayPal,” incoming Acorns Chief Executive Noah Kerner said in an interview.
PayPal split from eBay Inc. last year and now has one of the largest market values of any financial technology company, about $48 billion. The San Jose, Calif., company has been seeking ways to keep adding new customers who haven’t used the service to make payments in the eBay marketplace. PayPal shares are up about 11% so far in 2016.
A PayPal spokeswoman said that the company is “looking forward to developing a strategic partnership” with Acorns. PayPal will have a minority stake.
Mr. Kerner is moving into the chief executive role after joining Acorns as an adviser last year. He has previously advised companies including WeWork on marketing to millennials. He sold his marketing startup Noise in 2014.
Acorns, which was founded in 2012 by Walter and Jeff Cruttenden, who are father and son, said that 75% of its 850,000 active investors are between the ages of 18 to 34. Its customers have average annual income between $50,000 and $99,000.
Its assets are still relatively small compared with some other robo adviser startups. Betterment Inc. is the largest robo adviser, with roughly $4 billion in assets under management. It raised $100 million in new funding earlier this year. Acorns has now raised $62 million in total venture funding.
But Acorns is growing quickly, rising from about 475,000 accounts with $74 million in assets at the beginning of January to more than 850,000 accounts with more than $150 million invested. It first launched the investment app about 20 months ago.
Acorns charges $1 a month for accounts with less than $5,000 in assets, and 0.25 percentage points on accounts larger than that.
Mathias Schilling, co-founder of e.ventures, said that Acorns aims to stand out in the growing robo adviser niche with a focus on investing via mobile phone, rather than the web.
A number of big investment houses, including Charles Schwab Corp. and Fidelity Investments, have also launched automated allocation programs.
“We strongly believe mobile-only is the right approach for this market,” he said. “It’s a laser-focus on the target millennial group.”
Most people deposit money into their Acorns accounts by rounding up their small purchases to the nearest dollar, Jeff Cruttenden said. The typical deposit is $50 a month. “We want to make a big decision small,” he said.
PayPal has made previous venture investments in companies including Loop Commerce, which enables users to make online purchase gifts, and Pulsate, a marketing software firm.
Write to Telis Demos at email@example.com
First appeared at WSJ Venture Capital