Financing from Iconiq Capital and others restores Wealthsimple’s valuation to its prior high-water mark set at the peak of the pandemic tech frenzy in spring 2021.Eric Akaoka/The Globe and Mail
Wealthsimple Technologies Inc. is capping off the best year since its founding a decade ago with a secondary financing valuing the online investment manager at $5-billion, making it one of Canada’s most highly valued private technology companies.
San Francisco’s Iconiq Capital – the family office for tech luminaries including Meta Platforms Inc. CEO Mark Zuckerberg and past executives Sheryl Sandberg and Chamath Palihapitiya and Twitter co-founder Jack Dorsey, plus KKR & Co. co-founder Henry Kravis and James Murdoch – has bought about $100-million of stock from past and present employees.
Wealthsimple said an existing investor led the deal but declined to identify the buyer other than to say it wasn’t Power Corp. of Canada or its affiliates – which own 43.6 per cent combined of its fully diluted equity – or any Canadian entity. The identity was confirmed by three sources familiar with the matter. The Globe is not identifying them as they are not authorized to discuss the deal.
The financing restores Wealthsimple’s valuation to its prior high-water mark set in a $750-million financing at the peak of the pandemic tech frenzy in spring 2021. That deal saw Power Corp. of Canada and affiliated entities sell $500-million worth of their holdings. More than a dozen venture-capital firms, including Iconiq, backed the 2021 deal alongside Canadian celebrities Drake, Michael J. Fox, Ryan Reynolds and several sports stars.
The financing comes amid a period of torrid expansion by Wealthsimple. Assets under administration (AUA) now exceed $58-billion, up $6-billion since Sept. 30 and nearly double the $31-billion level last Dec. 31. The Generation Z-focused financial services company, which positions itself as a challenger to Canadian banks, had 2.6-million investment and banking clients on Sept. 30, up 16 per cent from a year earlier.
Wealthsimple started as a “robo-adviser” offering automated wealth management services, later expanding to offer online digital stock-trading, a high-interest savings account, cryptocurrency trading, tax filing services and mortgage products. The company is testing new offerings including a Visa credit card, margin accounts and cross-border payment services.
The average age of its clients has increased to the mid-30s, while the number of clients with $500,000 or more in assets with Wealthsimple has quadrupled in the past year.
CEO Mike Katchen said in an interview that Wealthsimple’s recent growth spurt has come across all asset classes as markets have returned to life this year. He added that November was shaping up to be a record month, with an expected $3-billion in new client deposits. IGM Financial Inc. CEO James O’Sullivan, whose Power-controlled company is Wealthsimple’s biggest investor, described its growth in May as “ballistic.”
Wealthsimple also recently added two Silicon Valley veterans to its senior ranks: chief financial officer Jeff Gowen, former head of treasury at Stripe Inc. and before that an investment banker with Goldman Sachs, and chief information security officer Justin Grudzien, who held that role at DoorDash Inc.
The surge in Wealthsimple’s business comes two years after its growth stalled as interest rates spiked and markets swooned, prompting Power to cut the value of its consolidating stake to $900-million as of June, 2022, from $2.1-billion six months earlier.
But as Wealthsimple’s business has expanded sharply since late 2023, Power has written its holdings back up in each of the last four quarters. Power valued its consolidated stake at $2.2-billion on Sept. 30, reflecting the pricing of the impending secondary deal.
Mr. Katchen said Wealthsimple is bigger “and a much higher-quality business than we were” in 2021. The election of Donald Trump in the U.S. has “made people even more excited and interested in investing” and fuelled expansion, he said. “We’re firing on all cylinders.”
Mr. Katchen said Wealthsimple “has no pressure for liquidity” and the secondary deal, its first since the spring 2021 financing, “gives employees some chance to monetize” though most of its 1,000 people didn’t participate.
The deal is “a great vote of confidence from someone who knows the business intimately and was willing to put a mark on it showing we’re doing well and that there’s a tremendous amount of momentum,” he said. “Very few companies have achieved or surpassed where they were in the frothy market of 2021.”
Many private-capital-backed tech companies, including B.C.-based Clio, have done secondary transactions in recent quarters in which they issue little or no new equity and buyers pick up shares from employees or early investors. Secondaries don’t dilute non-participating shareholders and give flush private-capital firms a chance to put cash to work.
Secondaries by private tech companies were once regarded negatively as a sign insiders lacked conviction. But given the three-year drought in initial public offerings and dearth of mergers and acquisitions, they have grown in popularity as a way for holders awaiting exit transactions to realize cash for their stock and lock in financial certainty.
With a report from Clare O’Hara.