Mike Katchen on why Wealthsimple avoided the traditional VC cycle to scale

At #ElevateMoney Stage (programmed by BetaKit) on Wednesday, BetaKit’s Douglas Soltys sat down with Wealthsimple CEO Michael Katchen to talk about the mentality it takes to build a successful FinTech company in Canada, and his plans to scale globally.

“We’re not in this for the glory, we’re in this for the purpose of the business we’re after.”
– Mike Katchen
 

Wealthsimple recently reached $5 billion in assets under management, is now boasting 250 employees, and four offices around the world. Founded in 2014, the company has achieved impressive milestones in a short of amount of time, which Katchen attributed to taking a different approach to its growth and investors, having rasied a majority of its financing from Power Financial and its subsidiaries. The CEO said Wealthsimple choice this path to specifically avoid the traditional VC funding cycle most startups face.

“If you get invested late in the funding cycle, if you are a business that requires perhaps decades to achieve the vision you have, well, if you’re not going to be able to generate the kind of returns that venture needs is they will force you to sell yourself, they will force you to go public before you’re ready, or they will just forget about you because you’re going to be a write off,” Katchen said.

“When we went out to raise money, given that we knew that trust would be such an important part of how you build a long term business in this space, we specifically sought out strategic capital, someone that we thought we could lean on, that had meaningful trust in the community behind them,” he added.

Wealthsimple’s unique approach has often been a topic of conversation within the Canadian tech ecosystem. Earlier this year, BetaKit reported on Power Financial’s 88.6 percent equity stake in Wealthsimple (Wealthsimple claims that when factoring in other stakeholder options that equity stake percentage drops down to 67.2 percent). The numbers raised eyebrows up and down Bay Street, and did nothing to quell murmors that the company was more subsidiary than startup.

Asked if the chatter bothered him, Katchen said Power’s early support was one of the main reasons the company was able to reach its current scale.

“We’re not in this for the glory, we’re in this for the purpose of the business we’re after,” he said. “I think the people that have signed up to join us are incredibly excited about the mission. I’m sure people will say whatever they say, but we just have to spend the next 20 years building a giant and prove them all wrong.”

Building a full-stack financial service

Speaking with BetaKit shortly after raising $100 million in new financing, Katchen declared his intention to build Wealthsimple into a full-stack financial service. A day before Katchen’s appearance on the Elevate Money stage, Wealthsimple announced its move into the tax space by acquiring SimpleTax.

Noting the acquisition, Soltys asked Katchen what else Wealthsimple needed to achieve full-stack status, with the founder dividing his plans into three pillars. The first is saving and investing, which Wealthsimple already addresses with its investment solutions, savings product, and commission-free trading platform. The second pillar is responsible credit, with the third being smart insurance to cover that credit.

Soltys noted that Wealthsimple was predominantly focused on collecting assets for its client base rather than spending, and asked if the company had considered more full-throated entrance into retail banking.

“Once we have the three kind of capabilities, which includes saving, and I think you’re right, we’ll have to add a spending capability there to help people with that,” Katchen responded.

Soltys then asked if Wealthsimple plans to be the brand that its customers identify for those financial opportunities or if it will form partnerships to add those services.

“We want to own the client relationship because we think we can create this really fantastic experience that is differentiated.”

“For us, we want to own the client relationship because we think we can create this really fantastic experience that is differentiated,” he said. “We use partners today even for our savings account. We’re not a deposit-taking institution, you have to use banks to generate that rate. We’re absolutely open to partnerships to deliver on this great product roadmap that we have in front of us.”
 

Another key component of Wealthsimple’s vision for financial services is fully automating the financial experience. Soltys asked Katchen whether he was considering throwing humans into Wealthsimple’s portfolio management offering, or keeping it fully digital. While short on details, the CEO said he was “not dogmatic” on this issue, calling technology a “massive enabler, not a disruptive force.”

“Our goal is to become our clients’ primary financial relationship, and to basically do it by reframing the experience and expectations people have with their financial partner,” Katchen added.

Partnering with Power’s partners

As the company eyes markets beyond Canada, particularly the United States, Katchen acknowledged it will be a challenge to stand out as a brand when the market is already so crowded. For this reason, Wealthsimple will focus on partnerships to give itself the strategic exposure it needs to grow, with Katchen highlighting Empower Retirement, a Great-West Lifeco company in the United States, and another arm of Power network. Katchen said another benefit to having an investor like Power is that it can facilitate these partnerships, and fuel international growth.

“The US is an enormous market, and the competitors that we have there are still just peanuts in the scale of that market,” he said. “I think our partnership with Empower provides an enormously exciting platform for us to be scaling in that business.”

Not coincidentally, Wealthsimple’s latest funding round was led by Allianz X, a large European insurance investment company, which owns PIMCO in the United States, but is also a non-Power investment entity. It was the first time the startup sought an investor outside of the Desmarais network, Katchen said, adding that this was done not only to validate Wealthsimple’s business model, but also to give the company strategic exposure to other markets.

“For us, as we think about our global footprint, and we’re now in three countries, bringing Allianz into this mix provides an incredibly exciting platform of how we’re going to scale across those other markets,” he said. “If we can continue to build on that network of relationships, and then add the Allianz network of relationships, we’ve got a pretty fantastic global reach within our shareholder base.”

This story has been updated with additional context and quotes.

With files from Douglas Soltys

Image courtesy Stuart Wood via Twitter

Isabelle Kirkwood

Isabelle Kirkwood

Writer, globetrotter, drone pilot & David Attenborough enthusiast