The Wealthsimple founders before Wealthsimple
Although Michael Katchen gets most of the media attention, Wealthsimple has two other key players with genuine co-founder status: Brett Huneycutt, a Rhodes Scholar and McKinsey alum and Rudy Adler, a guy with great design sensibilities whether in user interface or facial hair. The division of tasks is as follows: Katchen is the charismatic CEO (and original passive investing guru). Brett is an operations guy. Rudy is the Chief Product Officer / Chief Marketing Officer. As a financial product aficionado with an unhealthy number of financial accounts, I have to say that Wealthsimple has the best design sense of any financial organization I am aware of. Their skill at marketing, user interface and the like is a key source of competitive advantage. And so Rudy is the reason behind that. Their copywriting is also excellent, though, to be clear, they will never write with as much flair as OPM Wars.
Brett and Rudy are childhood friends. They are the co-founders of the gang's previous venture, 1000Memories.com. Michael Katchen (also a McKinsey alum) joined 1000Memories as a Vice-President, so he was originally the junior partner. 1000Memories was incubated at the selective and prestigious YCombinator. And it then had an enviable list of backers, that I would call Silicon Valley royalty. Consider just two: Reid Hoffman, founder of LinkedIn, member of the "PayPal Mafia", current net worth : $2 billion. And another billionaire, Chris Sacca, who invested early in Twitter and Uber. Ron Conway was also an investor, another legend.
The company, founded in 2010, raised $3 million in two rounds. And then by 2012, it was sold to Ancestry.com, when it had 6 employees. For an undisclosed amount, because as you know, Silicon Valley types are shy and retiring.
After spending some time at Ancestry.com, Katchen moved to Toronto to start Wealthsimple and was joined by Brett and Rudy. In Canada, they chose to raise money, essentially by making cold approaches to some local financial and software players who had had some successful exits (though nowhere on the scale of the Silicon Valley types they had previously landed).
Now, you might wonder:
Why did the Wealthsimple Three not go back to raise money from the Silicon Valley billionaires?
Did the Wealthsimple Three offer their early backers the possibility to invest in their new venture, as you might think courtesy demands?
Did they have a fallout with the VCs? Did Katchen, in an uncharacteristic bout of anger, burn bridges by screaming: "I am never doing business with you fat f**ks again."?
How are you going to twist this cursory Google research into yet another Wealthsimple conspiracy theory?
I am offended you would ask that, I don't traffic in conspiracy theories. But it is interesting that, despite Katchen's global ambitions, he did not return to those moguls in Silicon Valley.
OJ Simpson wrote a book called, If I did it, here's how it happened. I call this next paragraph, If I talked to the Wealthsimple founders, here's how they would have likely explained this to me:
Although by any reasonable standard, the 1000Memories exit might seem a good outcome, I believe that by Silicon Valley standards, the backers were likely underwhelmed by the results. VCs need gigantic homeruns to make up for their many strikeouts. The two co-founders (Brett and Rudy) came into a bit of money, though, by their own account, nothing outlandish.
Silicon Valley forces its investees to seek hyper-growth. They are focused on quick exits in the form of higher financing rounds, acquisitions and IPOs. Peter Thiel & Co, backers of Facebook, tried to get Zuckerberg to accept selling the company for $1 billion to Yahoo (current market cap: half a trillion). That's the quick hit mentality of Silicon Valley. Sometimes, this hyper-growth mentality pushes startups to do things that are unethical. Revolut, for example, has had some revelations of that nature. 1000memories.com while moderately successful, likely did not meet those crazy expectations. Maybe the founders didn't want to sell to Ancestry.com.
Katchen has directly addressed the question of why he did not go the traditional VC route recently, saying:
If you are a business that requires perhaps decades to achieve the vision you have, well, if you’re not going to be able to generate the kind of returns that venture needs is they will force you to sell yourself, they will force you to go public before you’re ready, or they will just forget about you because you’re going to be a write off.
And so Katchen essentially flipped Wealthsimple to Power Financial. Power is well known as a conservative, patient, long-term investor. Paul Desmarais I made significant investments in China in the mid-80s. The family is highly respected by the heads of government there. That's how far ahead they think. Of course, Power's hurdle rate as an ageing financial conglomerate is a lot lower than Silicon Valley whippersnappers. Warren Buffett asks jokingly, what do you look for in a partner to ensure a long marriage? His answer: low expectations.
The average bank CEO tenure is a few years and they are beholden to public shareholders who tend to be short-term oriented. (Though some public CEOs, like Bezos, have escaped this trap and attracted the right crowd.) Also, forgive me for saying this, but most bank people tend to be career-oriented, not mission-driven. I admire Wealthsimple's long-term thinking, it's still a rare quality and I believe it's a source of competitive advantage. Some aspects of Wealthsimple, banks can easily replicate. Other aspects, they will struggle to.