Joining the rabble of financial services-related Internet firms to receive venture capital funding in 2001 – 118 to be exact – DirectAdvice Inc. last week scored $16 million, all from Warburg Pincus.
While the Series C round technically is closed, the firm has set aside some additional capital to invest should DirectAdvice need it down the road, said Greg Back, a managing director with Warburg.
Specifically, the firm may pony up more funds in the future for product development efforts or possible acquisitions. For now, DirectAdvice, which offers customized, Internet-based financial planning and advice technologies, intends to use its most recent capital infusion to beef up its online capabilities and expand its worldwide sales and marketing efforts.
It’s not surprising that Warburg chose to be the lone investor in the round, as financial services technologies and companies fall right into the firm’s sweet spot. In fact, Warburg first discovered the deal about four months ago while trolling the sector for new investment opportunities.
“We think DirectAdvice is in the right place at the right time,” Back said. “We have a good window into the financial services sector, and we’re seeing businesses shift from a transaction-based model to an assets-under-management-based model.”
That’s where DirectAdvice comes in. Essentially, the company’s technology enables financial services firms to offer planning and advice resources to a broader range of customers, from high net worth individuals to those with more modest means. What is more, DirectAdvice provides financial services firms cost-savings on functions such as back office administration, which can come with a hefty price tag.
Furthermore, DirectAdvice claims its platform can enhance financial planners’ productivity across the board. “The challenge with the existing delivery of financial advice is that it tends to be very labor-intensive, not in terms of spending time with the client, but in terms of back office systems and administration. DirectAdvice allows the advisor, because of the electronic connections behind the scenes, to focus on the information they’re receiving and how they communicate it to the investor.”
From a consumer perspective, the product also is designed to meet virtually every aspect of an investor’s financial planning needs, from determining his retirement income to setting up his child’s college fund, and everything in between.
“There are 103 million households in the U.S. alone that would benefit from comprehensive financial advice, and maybe 3% to 5% at most get that advice,” said Brian Hollander, president and chief executive of DirectAdvice.
To that end, the company also offers consumer applications that enable financial services firms to set up branded Web sites with the DirectAdvice platform running in the background, where customers can come and take advantage of the planning tools DirectAdvice has to offer without ever knowing it’s there.
The company has signed on a bevy of big-name customers, including The Ayco Company, Mellon Financial Corp., People’s Bank, CSFB’s Pershing, SunGard and Wachovia Corp.
Founded in 1995, DirectAdvice has raised approximately $30 million in venture financing. The company plans to expand its business to the UK during the first quarter of 2002, and also expects to begin posting a profit next year.
Robyn Kurdek can be contacted at Robyn.Kurdek@tfn.com