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Vestigo Ventures Featured on RIABiz

By Oisin Breen | September 25, 2018 | News

Oisin’s Bits: Casady and Blundin’s Vestigo-voyage gathers steam with near $60 million cash-pile; Ethical-robo OpenInvest raises $10.4 million and flips B2B switch, founder lays into mutual funds

In this roundup, Mark Casady and David Blundin’s VC-odyssey, Vestigo Ventures, closes its first fund as the duo outline a nine-year strategy, and reveal they pitched in 8.5% of its near $60 million cash-pile; and the socially responsible investment robo-advisor OpenInvest goes B2B, rakes in $10 million of VC funds, gives votes to passive investors, and slams mutual funds.

Vestigo Ventures raised $58.9 million through its first financial technology VC fund, closing in August $8.9 million, or 17%, above target, as co-founders David Blundin and Mark Casady laid-out their nine-year, tiered plan to reap returns from big-data, artificial intelligence and blockchain.

Currently, the early-stage venture capital firm backs eight firms, including 2001-founded white-label portfolio management software and model marketplace vendor Vestmark; 2008-founded asset location and tax software supplier LifeYield and Mike Alfred’s 2018-launched cryptocurrency data sifter Digital Assets Data.

Although Vestigo focuses ostensibly on early-stage ventures, only Digital Assets Data and insurance compliance communications start-up TowerIQ, founded in 2017, are less than two years old.

The average age of Vestigo’s investments is 6.6 years, but this figure is somewhat skewed by Vestmark. If these are omitted, the average age of Vestigo’s investments age falls to 5.1 years.

That said, firms like Vestmark may not hit the mark as early-stage ventures, but as long as they still have high revenue growth and a thirst for growth capital, they fit the bill, says Blundin.

“Both Vestmark and LifeYield [for instance] have those characteristics. They look like early-stage FinTechs but carry much less risk due to their longevity. [Nevertheless] eighty percent of the portfolio is in the early-stage.”

Vestigo’s “Fund I” has a nine-year investment runway, after which point Vestigo will look to sell or take its investments public.

It’s a long-term process, and will likely involve several rounds of capital-raising, as far perhaps, as Series D, says Blundin. “We anticipate [then] that we’ll be able to sell to the larger VC’s that want to clean up the cap table in these later rounds as another possibility [too].”

It’s also important to bear in mind that of the near $60 million in funds that Vestigo has raised, the majority of it is banked for a later date. When firms need further investment, it’s available, says Casady. “Our model of investing is to do multiple rounds of financing per company.”

Corporate investors from the insurance and asset-management industry provide the bulk (51%) of Vestigo’s funding, but family offices (28%), and individual investors (21%) have also contributed.

Individual investors include Andrew Putterman, a Quovo, Betterment and Advizr investor, and Jarret Lillian, the managing director of VC-firm Bendigo Partners and executive vice president and head of emerging technologies at asset-manager Wisdom Tree. Blundin and Casady are also investors in the firm, and have put in $2.5 million each.

Blundin, the co-founder of Vestmark is a general partner at the firm, alongside Casady, the former LPL Financial CEO, who also serves as chairman of Vestigo’s advisory board. The firm’s third founder, and its managing director, is Ian Sheridan, a MassMutual, DST, and ADP alumnus.

Believe the hype

Founded in 2015, Vestigo’s core-focus is on firms with a big-data or AI angle, sectors that have had a hard time shaking a reputation for being the perennial next-big-thing.

But this reputation just doesn’t stack up to reality both Blundin and Casady insist.

It’s not so much that data is the next great wave over the horizon, or even the present big thing, it’s been a major source of opportunity for a very long time, says Blundin, who cites his first company, the e-marketing and data-mining firm Datasage — sold to the Vignette Corporation for $577 million in 2000 — as an example.

“[Datasage] worked with Amazon to create the “if-you-like-this-then-you-will-like-that” algorithms. That was in the 1990’s … [As for AI], it’s over-hyped for use in finding trading signals for portfolios, but it’s a proven tool in managing data and processes.”

The other key area of investment, alongside AI and data, is blockchain.  “It’s the early days for these types of businesses … [but] we expect the technology will be used beyond just crypto-currencies.”

Indeed, there’s more to Vestigo’s strategy than just cherry-picking industries. Software is the sole focus, since the “value proposition is more compelling,” says Casady. “Software companies have better margins and faster growth.”

Vestigo’s headcount stands at five, which includes its three co-founders, as well as managing director Mike Nugent, founder of SaaS performance analytics and investment data firm Bison.co, and an unnamed analyst. Vestigo also employs a rolling cast of interns from the local colleges that work “year round”. No new hires are planned for Fund I.

The full list of firms Vestigo has invested in to date is as follows: Digital Assets Data (2018), TowerIQ (2017), Mirador (2014), Student Loan Genius (2013), Lifeyield (2008), Micronotes (2008), NetCapital (2014), Vestmark (2001).

Just after this article was published, on Monday Sept. 17, Vestigo made its latest investment, and led a $1.5 million financing round for Seattle-based ZenLedger, a cryptocurrency tax calculator. The funds raised are earmarked for product development and marketing.

Flush with $10.4 million in VC funds, Joshua Levin, co-founder and chief strategy officer of ‘ethical’ B2B robo-TAMP OpenInvest has set a lofty target: the obliteration of mutual funds.

The San Francisco-based social responsible investment (SRI) robo has racked up $13.8 million in VC capital since its 2015 founding, but has yet to achieve escape velocity, evidenced by its latest RIA-focused pivot.

Instead of following the traditional ETF model, its portfolios consist of individual stocks that fit ethical frameworks — think customizable model portfolios but with values in place of strategies — regularly rebalanced to track an index like the Russell 1000. Advisors and clients select or deselect these values, or individual companies, alongside trading strategies.

OpenInvest is an SRI robo-advisor with added bells and whistles, including typical high-end features, like tax-loss harvesting,  fractional share trading and the unusual proposition of introducing shareholder voting for passive investors.

The idea is that by splitting strategies in two–returns and values–and letting clients and advisors tailor their portfolios accordingly, a fund-like product is created, says Levin. “[This way] they can capture some of the margins held by fund managers.”

After its latest funding round on Jul. 26, the firm also dropped its B2C account minimum to $100 to test the interest of smaller investors. Fractional share trading is used in lieu of scale to keep portfolios optimized.

OpenInvest employs 17 staff, 75% of whom work in technology development and data research. It declines to share the current value of assets under management, but states that the figure of $5.8 million held by 259 accounts listed in its May ADV is “quite out of date”.

Attractions?

In its July funding round, OpenInvest raised $10.4 million in series A funding from, among others, Alexandria, VA.-based QED Investors, and Menlo Park, Calif.-based Andreessen Horowitz – an early seed backer.

Indeed, for all its futuristic custom-made vision, these backers are what really draws the eye, says Adrian Jones, executive vice president of Pleasanton, CA.-based Mirador Capital Partners. “Andreessen Horowitz’s investment in OpenInvest caught our attention … [and OpenInvest’s] leaders have excellent backgrounds too.”

Levin’s CV includes a number of “ethical roles”, including three-and-a-half years as the manager of the World Wildlife Fund’s sustainable finance program. His two co-founders began their careers at the $150 billion Westport, Conn. Hedgefund Bridgewater Associates.

Phillip Wei, OpenInvest’s chief technology officer, was a Bridgewater technologist. He is one of the designers of food-delivery start-up Deliveroo’s software as well as the quantitative trading system at New York City hedgefund Blue Mountain Capital. Conor Murray, the robo’s CEO is a JP Morgan alumnus, as well as a former Bridgewater technologist.

OpenInvest’s latest tranche of VC-funding will be spent primarily on upgrading the software, in particular its market tracking capabilities, and building out integrations with RIA vendors. The firm also plans to add support for new asset classes, including fixed-income and alternatives.

Seeking Alpha

OpenInvest’s robo portfolio strategies, as well as its ethical strategies, are designed in-house, however it also offers active management strategies imported from third parties like the niche $7 million AUM San Francisco-based RIA and ethical investments rating firm HIP Investor.

The robo’s current clients include Mirador and an as-yet-unnamed $300 million RIA in the Bay Area which will roll-out OpenInvest’s software this Fall.

Just don’t say model portfolio.

What we’re doing isn’t about model portfolios, because the software rebalances in line with an index tracker, and it’s not a fixed basket, says Levin. “Clients are essentially renting the software that would be used to construct such a portfolio in the past.”

Overreach?

Rather than targetting just the niche ethical market, Levin has an ambitious — some might say too amibitious — target in the cross-hairs: mutual funds, which he claims are a previously necessarily evil that has had its day.

OpenInvest simply blows away what other asset-managers can do, whether they’re running mutual funds, ETFs or even thematic baskets like Goldman’s Motif. These are legacy products with zero flexibility, he says.

“Funds are dead. Literally and figuratively … They buy you into a pre-set portfolio that may fit some of your goals and values … [but then] they sit there, out of sync with your personal reality and preferences.”

Indeed, it’s not just funds who stand to die off in Levin’s ethical future, but RIAs who don’t get with the program, too.

“Any RIA who can’t handle [customizing to values as well as strategies] with a few clicks, while specifying the specific financial strategies they want to employ should be concerned about the future,” he adds.

Read the full feature here.

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About LifeYield
LifeYield (www.lifeyield.com), creators of the Taxficient Score®, is the industry innovator and leader in facilitating tax-smart, risk-smart household portfolio management. LifeYield's Advantage Suite® enables financial advisors to provide a comprehensive, tax-aware view of a client's entire investment and insurance portfolio, including easy-to-use tools to engage clients so they make and keep more money, and achieve their financial goals.
Based in Boston and founded by finance and technology industry leaders, LifeYield believes that by leveraging digitally enhanced advice advisors can improve investor outcomes and enhance the value and experience of support goals-based wealth management strategies.
For more information, please visit www.lifeyield.com.