While we don’t know what 2021 will bring in terms of Wealthtech investing, a look back at some trends in 2020 provides some insights and food for thought. Much of the investment in Wealthtech firms comes from accredited investors. These firms compete for seed money and private investors along with other tech start-ups and early-stage firms.
Here are some of our thoughts based on a review of 2020 Fintech investment trends by data analytics firm CB Insights.
2020 Fintech highlights
A few highlights in the overall Fintech space per CB Insights:
- Overall funding fell about 2% for the year, with the number of deals falling nearly 13%.
- Q4 of 2020 showed an 11% increase in the number of deals marking the first quarterly increase since Q3 of 2019.
As far as Fintech sectors in 2020:
- Fintech firms that provide solutions to small and medium sized businesses exhibited the most considerable growth in both funding levels and the number of deals in 2020.
- Funding and deal activity in the alternative lending space both declined by 35% in 2020. Mega-rounds of financing fell from 25% in 2019 to 15% in 2020.
*Note: A mega-round is typically defined as a funding round of $100 million or more.
Wealthtech trends
According to CB Insights, the number of deals involving wealth management firms fell 11% during 2020. Funding levels increased by 86%, mainly on the strength of 10 mega-rounds, which accounted for one-half of the total funding in this sector.
Robinhood, the stock trading app that has been in the news of late, received $1.266 billion in funding combined in Q2 and Q3 of 2020.
Several Wealthtech start-ups focused on ESG were strategic acquisition targets in 2020.
- FactSet announced its acquisition of Truvalue Labs, an AI-driven ESG data analytics platform, in October of 2020.
- In November of 2020 Moody’s announced their acquisition of a minority stake in MioTech, a provider of ESG and KYC data and analysis tools in China.
Other trends we saw in 2020 included:
- Several European-based early stage Wealthtechs providing sustainable investing options received funding in 2020.
- Several big players in payments, messaging, and banking expanded further into the wealth management sector via investments and partnerships with various app providers.
- Several companies that create APIs and software for wealth managers received rounds of funding in 2020.
What’s next?
We don’t know what the future holds, but we expect the trends we saw in 2020 to continue into 2021 and beyond. ESG and sustainable investing have become ingrained into the investing mainstream, fueled mainly by the next generation of investors who will be the recipients of a significant wealth transfer over the next 25 years. Pulse provides ESG and sustainable investing monitoring and reporting in these popular asset classes.
Additionally, firms that provide apps and other technology to the wealth management industry will also likely be recipients of future Wealthtech investment dollars.
What seems certain to us is that Wealthtech companies will continue to drive change and innovation in the wealth management industry.