Wealthfront Inc.'s valuation was cut by about a third in its most-recent funding round after rising competition dented optimism about the startup, according to people familiar with the matter.
The digital wealth-management startup, which amassed over $10 billion in assets under management since launching in late 2011, is now valued at around $500 million, the people said. They asked not to be named discussing private matters. The latest fundraising, which closed late last year, brought in $75 million. The last time the Redwood City, California-based company raised funds, in 2014, it was said to be valued at about $700 million.
A Wealthfront spokeswoman disputed the latest valuation but declined to give the current number.
Wealth management startups took off shortly after the financial crisis, capitalizing on the rise of passive investing as well as mobile applications and websites that appealed to millennials. But competition has been rapidly increasing from other startups as well as incumbents like Morgan Stanley,
Fidelity Investments and
Charles Schwab Corp. Each has launched a version of a digital wealth product. Betterment LLC, has amassed $12 billion and closed a financing round in 2017 that valued the startup at $800 million.
Announcing the fundraising early this year, Chief Executive Officer Andy Rachleff said it would help push Wealthfront further into financial services and launch new offerings. Just over a month later, the startup announced it was adding a risk parity strategy for clients with more than $100,000 at the firm. The strategy aims to balance risks, so that if one investment takes a dive, losses will be diminished by holdings that tend to move in the opposite direction.
Critics said the move diverged from Wealthfront's passive strategy and noted it forces customers to opt out of the offering rather than in, automatically placing them by default into a product with a much higher fee.
The startup has backers including Tiger Global Management, who led the latest round, as well as Benchmark, Greylock Partners, Index Ventures, Ribbit Capital, Social Capital and Spark Capital Growth.
