The 'D-round' VC raise led by Valor is a 100%-plus jump from the $65.8 million invested to date

June 8, 2017 — 1:31 PM UTC by Brooke Southall


Brooke's Note: I believe it is still fair to ask whether Addepar is the second coming of financial software and data or an overbuilt RIA performance reporting application. What is not in doubt is that people who are proven uber-successes in Silicon Valley see the effort in Mountain View as the second [and maybe third and fourth] coming -- and are willing to stake an amount of money on it that makes heads spin. It's not really a threat to the Tamaracs, Morningstar Offices and Orions of the RIA realm, which do a perfectly good job accounting for the portfolios managed by most RIAs that are built of ETFs, stocks, bonds and mutual funds. It is trying to create and dominate a green pasture of investing in private investments that is largely too unwieldy for most advisors today. We'll keep watching as long as the Addepar project makes exciting advances.


Addepar closed a $140-million funding round led by its only outside director who operated in stealth mode until now perhaps because of the other head-turning directorships he occupies.

Having raised $65.8 million previously, the Mountain View, Calif.-based performance reporting software company is now staked to years of aggressive growth -- the 200% increase a reflection of its recent 18-month growth spurt from $300 billion to $650 billion assets under administration, according to its CEO, Eric Poirier.

"That level of growth is the strong tailwind," he says. That said, these are high times for performance reporting firms with Orion and Black Diamond reporting similarly stunning growth as RIAs move off desktop products to ones based in the cloud.

Taken aback

Doug Fritz says the $140 million of funds raise takes him aback.

"The $140 million is huge for a series D and I’m interested to see what they’re planning to do with the money. I would assume a sizeable chunk goes to buy out existing equity owners." Fritz, former senior vice president in charge of the investment desktop at the private bank at Wells Fargo now runs his own consultancy, F2 Strategy from Tiburon, Calif. 

The main people who Poirier had to win over were very close at hand -- and two of them were already major investors. The round was co-led by Valor Equity Partners, Harry McPike, and 8VC.  8VC is led by Addepar co-founder and director, Joe Lonsdale. Valor is headed by Antonio Gracias who previously invested heavily in Addepar and has sat on its board -- albeit unannounced to the public.

Poirier is the third member of the board, which only has three members.

The significance of Gracias, 45, as an Addepar board member is that he also sits on the boards at Elon Musk's companies. He is the lead independent director at Tesla Motors and board director at SpaceX and non-Musk Marathon Technologies and sees Addepar as sharing similar characteristics as an investment, according to Poirier. Gracias, formerly of Goldman Sachs and trained as a lawyer at University of Chicago, allocates his time and money to moonshot efforts to create something that don't exist and that can change an industry.

'Never imagined'

“The idea of a common language and a truly universal data platform for the financial services world is something Wall Street 10 years ago could never have imagined,” said Gracias in a release. “Addepar has not only imagined it, but achieved it, pioneering a fast growing new market that will revolutionize the way data drives finance.”

Lonsdale frames the challenge in epic terms that yawn back to the Reagan administration.

"Much of the technology infrastructure that powers global finance was built 20 to 40 years ago; to transform financial services, we need to reimagine and rebuild the foundation."

But Fritz, whose technology leadership at Wells Fargo spanned 2006 to 2013, says that Lonsdale may be understating the challenge.

"When Joe says that the rest of the industry is on 20 to 40-year old technology, he’s underplaying the sadness and frustration that that brings large financial services firms," he says. "These legacy tech solutions are like stones around the necks of our country’s biggest wealth firms. Can Addepar really revolutionize the whole thing and set a completely new standard?  Even for an Addepar fan, that’s extremely difficult for me to believe."

Digital 'uproot'?

It's an innovator's dilemma on the grandest scale, Fritz adds.

"Large wirehouses and wealth management divisions of major banks have invested hundreds of millions in the legacy tech.  They’ve built everything into them, then layered decades of customization, data feeds, operational processes and other tech on top of it.  Even today, we have huge firms plowing new money into the ancient technology like Advent, First Rate, Beta or SEI or FIS.  It’s going to take a while before the legacy tech can be uprooted."

(Clarification: After this article was published, SEI protested about being lumped in with providers of legacy systems. A spokeswoman writes: SEI ... introduced SEI Wealth Platform in the UK in 2007 and rolled out in the U.S. in 2013 and is not an add-on nor an extension to SEI’s existing legacy platform, TRUST 3000. It was built completely from the ground up on a modern infrastructure.  Wells Fargo, Regions Bank, TIAA and others who have signed on to transition from their legacy systems to the SEI Wealth Platform. Fritz responded to SEI's pushback and says the Oaks, Pa.-based firm is right as far as it goes. He adds that in the context of the ultra-modern advances of Addepar that he stands by the inclusion of SEI in his remarks.)

But Addepar is just getting going with working with non-Addepar technologies, according to Lonsdale.

"The ecosystem of partners and applications building on top of the platform is just getting going, and will be more important than anybody understands."

Fritz quips in an email the truth of what Lonsdale is saying.

"If anything, their solution is too advanced for many of their clients to really comprehend (yet)… much like Tesla!"

That "ecosystem" can be understood in terms all the work up until now that led to an open API. Long-viewed as an insular firm almost bizarrely disinterested in seeking revenues or linking its products with those in the outside world, its next leg will include a notable change in that regard.

Having already hired 100 people just in the past year, Addepar will continue to add to its engineering staff.

Seasoning sought

The difference now is that instead of snagging promising prospects straight out of Stanford or MIT, it will look to bag more seasoned talent with specialized knowledge relative to the direction it wants to go. 

Its purchase of AltX was in large part a move to acquire specialized data engineers. Addepar deal may salve big, lingering pain point for RIAs who use alternative investments

But Poirier also emphasizes that the firm will hire aggressively for its sales and business development staff. One recent coup in business development was establishing a beachhead with the wirehouses.

In trying to help a reporter understand the data challenge in question, Poirier explains the near impossibility of managing a portfolio when pieces of a hedge fund are acquired over time. The advisor struggles to get what positions are held or even which of a host of funds is involved -- never mind cost basis.

The recent purchase of AltX is an attempt to create the magnetic resonance imaging needed for such opaque private investment.

Just getting going

"The ecosystem of partners and applications building on top of the platform is just getting going, and will be more important than anybody understands," Poirier says.




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Top Executive: Eric Poirier

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Stephen Winks said:

June 8, 2017 — 8:37 PM UTC

An entirely new more modern approach to portfolio construction which streamlines cost and supports expert professional standing (fiduciary duty) of advisors is emerging and outdates a series of disjointed unrelated transactions where it is not possible to determine whether the broker adds value or not. It is all built around prudent process that puts financial services (asset/liability study, investment policy, portfolio construction, performance monitor, etc.) back into the financial services business. Will Addepar be the unique firm that embraces innovation and professional standing of the advisor or will they have company? SCW

Brian Murphy said:

June 9, 2017 — 11:50 PM UTC

They will have company. That said, I don't believe that the next generation service provider (the qualities of which you list above) will start in the B2B space - it just never happens that way. Real disruptive innovation only comes from outside the industry. Addepar is building a service focused on solving the problems of brokers/advisors. Yet, the real problems aren't there, but in the end client's results/treatment/costs. In groundbreaking changes, the end client always freely chooses to do things differently - it's not the traditional industry that brings a better way of getting things done...ever. You can't serve two masters - Addepar has chosen theirs and it's the B2B route. IMO, that's the wrong one for forcing big change. Others will win, but I suspect the first generation players (Betterment, Wealthfront, Personal Capital) are more akin to Alta Vista, Lycos, and Infoseek than Google.

Stephen Winks said:

June 10, 2017 — 11:00 AM UTC

Bryan, It is up to the advisor and the advisor is a function of their supporting firm, and the supporting firm is a function of statutory parameters of advisory services which establish professional standing, so I disagree that B2B never ever works as (1) streamlining cost, (2) simplifying the delivery of advisory services, (3) creating scale are essential to the success of the individual advisor. Professional standing in advisory services require a common protocol but the skill of the advisor which you correctly identify as the differentiator will never be standardized. Those intangible qualities like trust, empathy, etc. are the same qualities that differentiate the good from great. This is what makes women better at advisory services than men. We can agree that that advisory services a decade from now will be materially different from that of today as a third of today's brokers will be retired and replaced by more technologically astute advisors. We are moving from transactions with no ongoing accountability to fee for service with full ongoing fiduciary accountability. SCW

Brian Murphy said:

June 10, 2017 — 9:55 PM UTC

Stephen, the spelling of my name is "Brian" with an's right above where you wrote your response, yet an inattention to detail led to an error. Humans make these errors, computers don't. I would push back and in response to your beginning with "it is up to the advisor" and suggest taking a step back to "it is up to the customer". The choice of whether to use a human advisor is not pre-ordained. It's a clear choice of the consumer and dictated by a number of tradeoffs including trust, competence, convenience and price. I suspect we can agree on that. If one believes consumers will continue to choose human advisors long into the future, then yes Addepar will likely play a great role in helping human advisors go from good to great. If on the other hand, one believes consumers will increasingly turn towards digital offerings then providing tools to advisors will become this generations "buggy-whip" makers. I happen to believe the latter.

Stephen Winks said:

June 11, 2017 — 3:34 PM UTC

Brian, Just as in medicine,,physicans are greatly empowered by technological advances, which is also true of advisory services. If one believes in fiduciary duty (as defined by statute) the continuous, comprehensive counsel of fiduciary duty is literally not possible without these innovations. So it all depends on the wisdom of the advisor in using these innovations in serving the best interest of the investing public. Presently the industry (SIFMA?FSI) is fighting innovation and fiduciary duty. Thus, it is indeed up to the advisor to demanding the proper support of their professional standing in rendering advice. I think you would agree. SCW

Brian Murphy said:

June 11, 2017 — 9:53 PM UTC

I agree fully that technology can (and will) aid advisors in pursuing their true fiduciary duties - to the extent they wish to do so. That said, I suspect that digital advisors will grow to be more fully responsible in applying fiduciary standards than humans - and that consumers will be more receptive to this approach than what they've been fed to date. And that's where the big changes in the industry are likely to come. I think we're in agreement on your views overall. I was merely pushing my vision for how change is likely to occur. Best, Brian Brian

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