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With A Fresh $32M In Funding, Betterment Hopes To Manage $100B By 2020

This article is more than 9 years old.

Betterment, a company that offers a web-based money management service, has raised $32 million in Series C funding from Citi Ventures, Northwestern Mutual Capital and Globespan Capital Partners, along with existing investors Bessemer Venture Partners, Menlo Ventures and Anthemis Group.

The company previously raised $10 million in Series B funding in October 2012, and $3 million in Series A in December 2010.

The service seeks to automate the role of traditional wealth advisors by offering investors cloud-based software to guide their savings plans and optimize investment gains. The company charges fees starting at .35% for customers with less than $10,000 invested through the service. The number drops to .15% for those with more than $100,000 under management. Traditional money managers can charge as much as 1% annually.

Betterment, with 50 employees, currently manages $500 million in assets, a number that grows by about 10% monthly according to CEO Jon Stein. Wealthfront, a rival, manages about $800 million. Wealthfront requires customers to invest a minimum of $5,000 through the service. Betterment customers can invest as little as they like.

Stein, 34, describes the service as a mix of sophisticated financial technology and behavioral science. “We find that we help our customers get a better investment return by limiting some behavior,” he says. Betterment clients tend to avoid timing the market and the company automatically rebalances most portfolios. The company’s director of behavioral finance previously worked as a behavioral finance specialist at Barclays .

The average age of the company’s 30,000 customers is 36, with 20% of its assets coming from customers older than 50. Some customers manage multiple millions of dollars through the site. The company recently released a product tailored for retirees that automatically withdraws cash each month at a rate that ensures customers won’t run out of money.

Though currently restricted to consumers, the company will soon release Betterment Institutional, a product designed for investment advisors. “It will free them up to focus on areas where they can really add value,” says Joe Ziemer, the company’s communications manager.

At the high end of Betterment’s fee range, .35%, the company will bring in only $1.75 million in revenue on $500 million in assets. It’s tough math, but Stein insists that he has no plans to add revenue streams or toy with alternative business models. “It aligns us with our customers,” he says of the model. “So that we’re not making money off of mutual funds we’re recommending or something like that.”

Stein expects the company to manage over $1 billion by year-end, and nearly $100 billion by the end of the decade. With $100 billion under management, the company would generate revenue of $350 million at the high end of its fee range.

“We really believe that an automated service like ours will be the default choice among Americans,” he says.

Follow me @JJColao and on Facebook.