Will D2C Investing Platforms Receive Venture Capital Funding in 2024?

Only if founders create new operating guidelines will it be possible. raise money, scale, exit big. By 2023, it was evident that many venture capitalist-supported investment platforms had not delivered the anticipated returns, filing for bankruptcy or experiencing unsuccessful IPOs. This considerably undermined investors’ faith in the sector. For quite a while, the standard for a lot of investment startups has been to raise funds, grow, and then have an impressive exit. Investing in businesses is beneficial to investors and has extensive implications for society, yet to advance, newer platforms will have to create fresh strategies. the transition from commission-based to fee-based advice and the proliferation of technology-driven platforms. Over the last 30 years, the investment industry has gone through two major changes: the shift from commission-based to fee-based guidance and the widespread adoption of technology-powered platforms. Revolutions in the U.S. and Europe served as an inspiration to innovators around the globe. This sparked a sea of entrepreneurs, including Vest, that wanted to channel the same level of success in developing markets, with investors flocking to support their ideas. It quickly became a common goal for startups---many of whom purported to be the “Robinhood of [insert country / region].” By 2023's end, the venture capital-backed wealth management sector is facing a challenging yet transformational time. In 2021, everyone was full of enthusiasm for this field; however, conditions have changed. So, what caused this shift, and what's the next step? Inflation and accompanying increases in interest rates had a detrimental impact on startups, particularly those in the investments sector. This higher cost of capital and changes in investor risk preferences led to a lower demand for attractive investments. Investment-based startups were heavily impacted as stock markets declined and interest rates rose, creating an atmosphere of unease that had not been seen in the financial industry for over a decade. Despite these difficulties, companies that had raised a large amount of capital in 2019–2021 still pumped money into their marketing. This caused customer acquisition costs to increase, leaving startups who had not yet reached profitability in a desperate situation as they attempted to raise capital to cover operational expenses. This difficult situation caused many companies and founding teams to fail. Ours was almost one of them. Yet, this is just the tip of the iceberg; there are more fundamental issues behind the lack of efficiency with investment platforms. It's traditionally been said that startups should prioritize the creation of "painkillers" (such as providing urgent solutions to a need-to-have), as opposed to "vitamins" (products which are nice-to-have, but not necessarily essential). However, due to market volatility, easy gains from equity investment are no longer seen as a reliable "painkiller" in the investment sector. The problem now lies in making investment seem like it's providing a necessary solution to tough times, particularly for younger generations who are facing financial trouble with little to no support from the social safety net, or from their aging peers, due to declining birth rates. The democratization wave, marked by the introduction of zero-commission trading, has spurred expansion but posed challenges to the industry’s profitability. As the zero-commission approach has become a standard, the competitive advantage of being a first mover has dissipated. VC-backed wealth platforms remain under pressure to experience rapid expansion; and, without another clear means of growth, many founding teams resort to acquisition-led growth tactics with questionable customer acquisition cost/life time value ratios. In Mexico, for instance, the foremost neobanks are offering deposit interest rates of 15%, which is more than four times the rate set by the central bank. The rise of investment democratizers on a worldwide scale has led to a situation where they are operating in less competitive markets, however these are also less affluent, making it hard to gain the size and success needed to make a venture profitable. As an illustration, a usual take rate for assets held in custody is about 1%. If an organization has $1bn worth of AUC at a 1% take rate, this will constitute $10M in yearly earnings. Bearing in mind that high-growth startups in this industry garner a 10x valuation multiple based on their yearly revenue, in order for it to become a unicorn, the platform must secure $10bn worth of AUC, a challenging accomplishment even in a large, mature market such as in the US. Navigating the complexities of ensuring compliance while still making investments in operations and stimulating growth can be difficult. Too much emphasis on compliance may inhibit growth, whereas not investing enough may result in considerable hazards. Founders who focus on immediate growth often have difficulty dealing with these choices. This can lead to devastating regulatory or infrastructure breakdowns or, at best, the accumulation of expensive "compliance debt" that must eventually be taken care of if the business is to keep expanding. By 2022, the same winds that previously aided equity values in reaching their highest peaks since 2009 became a hindrance, due to escalating inflation and an increase in interest rates, along with global tensions. Nations are aging and their populations are projected to diminish shortly. Considering this outlook, it's difficult to come to any other verdict than the fact that the following generations will face more difficulty in amassing wealth when compared to their older counterparts. Although there are other elements in force, populations aging and declining puts less of a burden on nature. Artificial Intelligence has the potential to revolutionize industries and create and sizable economic surplus, yet it also boasts potential dangers that should be properly dealt with. Likewise, the progress of green technology in energy production makes it possible to experience financial growth without wreaking an excessive amount of destruction to the environment. Given the backdrop of risk and opportunity on a global scale, it has now become even more crucial to construct a secure financial future. Investing shrewdly will likely become more difficult, so investment systems have to be altered in order to accommodate the changes. We are concentrating on causing growth in 2024, as creating a stable company is essential to having the privilege of servicing our customers for years to come. Listed below are some of the driving forces of our thoughts as we move towards a future filled with excitement and ambiguity: When we first released Vest, we provided the industry-standard zero-commission model, with the option of secondary monetization or potential subscriptions in the future. Unfortunately, this method was not viable in the changing market. We didn't receive a warm reception when we switched to a fee-based structure, as some of our users appreciated the free nature of the product. Consequently, we experienced a rapid churn in the initial stages. Our team's time on the ground in São Paulo and Mexico City gave us the opportunity to better understand our customers. We shifted away from vanity metrics such as AUM and new account creation, towards tracking cohort-level net deposit volumes and NPS. Ultimately, the improved customer relationships we established has paid off - our net deposits have stabilized, trading volumes increased, and NPS, after an initial drop, has been on the rise. This month is projected to be our best yet in terms of trading fee revenue. The initial churn was a difficult period, but by pricing our services to reflect the value they provide, we have pushed ourselves to become more dedicated to delivering the best possible customer experience. This has had a huge influence on the way we build and execute our product roadmap. Today's powerful language models are about to cause a transformation in our industry. We believe that, in the near future, the differences between self-directed investing and advisory will vanish. Whereas previously, certain apps were specialized in active trading while others centered around robo or personalized advisory, AI is going to enable investors to take advantage of as much or as little assistance as they wish. Just as with a self-driving car, where you can simply take over the wheel, investing will undergo a similar shift over the next few years. It is expected that costs in the area of wealth management will be reduced, providing those who make use of artificial intelligence within their operations with the chance to reduce the amount of time devoted to mundane, repetitive tasks so that more attention can be given to each client's specific needs and the services they will receive in exchange for their payment. 2023 was merely the beginning: this technology will develop at a rapidly increasing rate in the coming years. Here at Vest, we are taking advantage of AI in customer service, UX evaluation, software engineering, and robo-guidance to ensure that our customers and associates reap the advantages of this cutting-edge transformation. Direct-to-consumer (D2C) models can be costly to develop without the advantage of virality. As a result, several startups that initially adopted this approach have shifted their focus to B2B, where they can utilize the collective value more effectively with limited capital. Our primary goal is to help millions of people create lasting economic security and autonomy. For the majority of our goal audience, that includes collaborating with financial advisors—a move we’ve made that has us in the B2B2C space, teaming up with local wealth managers to construct a top-notch platform for asset dollarization while still furnishing our customers with our fundamental services. As we develop our beta application for financial advisors with our first set of trial customers, we’re discovering that our direct-to-consumer business actually bolsters and strengthens B2B2C. Both clientele and advisors are content with collaborating with a firm that has some kind of local renown, and all are satisfied with a visually appealing product that functions appropriately. Our thought process is informed by the insight that market valuations and tangible assets may be misaligned, resulting in strategic M&A opportunities and the necessity of creating a global platform. With numerous smaller wealth platforms out there and limited access to capital, the potential for mergers and acquisitions is high. In our experience, taking on an asset base with a value of around $200M would result in a considerable improvement in cash flow efficiency. This would be achieved as our platform would absorb the accompanying revenue streams while cutting out 70–90% of redundant operating costs within 4–6 months. This business growth avenue is far from simple, with numerous enterprises participating in M&A failing to ascertain its significance. Nevertheless, the brokerage industry appears to have a distinctive distinction; most of the tech-adoption leaders, like E-Trade, TD Ameritrade, OptionsHouse, and Scottrade, either fast-tracked growth through acquisition, or were obtained by corporations like Charles Schwab. Mergers and acquisitions cannot produce the same level of returns for our investors as a venture, and they can’t be used in place of constructing a financially feasible, substantial increase mechanism. Yet when carried out correctly, it has the potential to enhance the financial performance of lower-level enterprises while also widening their reach on an international scale. This past year has posed many challenges, but it has also been a period of significant growth for us. As a founder in the investment sphere, I'm eager to hear your experiences and perspectives on developing in 2023 and what you foresee for 2024. Investors that want to learn more about this space, or who need any assistance, I'm happy to be of service. Furthermore, I'm curious to talk to those investors who have lost faith in investment tech and see how we can foster collaboration between capital providers and entrepreneurs to build investing experiences suitable for the ever-evolving world. I look forward to speaking with you soon. You can reach me through my email aaron [at] mivest [dot] io or on LinkedIn @aaronpolhamus. Sending best wishes to fellow founders for a joyous New Year 🎉🥂

Source: https://aaronpolhamus.medium.com/2023-is-over-will-d2c-investing-platforms-become-venture-backable-again-in-2024-2a171eeaf06e?source=rss------fintech-5