From almost the very beginning, Riskalyze has had the look and feel of a winner. Which can mean only one thing for the financial services startup: The venture capitalists were circling.
“We had tons of inbound emails and tons of inbound phone calls. It was constant,” Riskalyze CEO and founder Aaron Klein said in a phone interview. The five-year-old firm had previously raised about $3.5 million from friends and family, but in June Klein decided it was time to start returning calls to help the firm expand even more aggressively.
On Halloween, Riskalyze accepted its first major institutional investment of $20 million from FTV Capital, a hybrid firm that is part venture capital, part private equity. Klein opted for FTV because, he says, they are patient money and willing to put a lid on the size of its investment. The company waited for one investment, Financial Engines, to go public for about a dozen years, which Klein admires. Plus: “This is the smallest deal FTV was willing to do.”
Details of the transaction have not been released. Klein simply says: “We were a nice single-digit multiple of revenues.” He adds: “We could have gotten twice or three times the valuation.” But Klein says he didn’t want to “lard up” the company. “We just focused on bringing in capital and being fair to existing investors.”
Unicorns, shmornicorns. There’s just too much hype around the VC way of investing. “They want to be Facebook or Twitter or SnapChat or die trying.” That kind of money has all kinds of pitfalls. VCs aren’t waiting a dozen years to cash out. High valuations, which look good on ranking tables, come with a high price tag for employees and investors. For example, in exchange for unicorn status, the startup may promise the VCs preferential payouts, with minimum returns on their money. Let the employees and early investors be damned.
“It’s steroids for startups. I’m not going to play that game.” By contrast, he called FTV the perfect partner. “They are not trying to flip you like a venture capitalist.”
Klein suggested this kind of partnership could help the company remain private indefinitely (too bad for IPO investors!) “We might want to be owned by a private equity firm later. This is a way to not go public.”
Over the next 5 to 7 years, Klein expects revenues to grow by a factor of at least 3 and as much as 5. Riskalyze’s newest product, AutoPilot, may hold particular promise: He believes the financial advisors already using other products could expand two to three times without adding a single new customer to the company.
At the moment, Riskalyze doesn’t see any serious competition on the horizon. “We haven’t lost a single deal to potential competitors,” Klein says. Advisors either buy Riskalyze or they don’t buy anything else.
Riskalyze has been living the ultimate startup dream. Staff expanded from just four in 2012 to more than 109; Riskalyze now has its own building in Auburn, Calif., and is building a team in Atlanta. Calls from financial advisors light up the switchboard from all over — Singapore, Australia, Mexico, Canada. At some point, Klein says Riskalyze will have something for all these potential customers. For now, 15,000 financial advisors in the U.S. use Riskalyze to help investors understand the risk in their portfolios and whether that is in sync with their risk tolerance.
Only a few of the early investors have sold their shares — people in their 70s and 80s, Klein says. The rest are sitting tight — where else would they put their money, they ask?Like This Post