Can a startup wealth management firm compete against the Fidelity Investments of the world? MyCFO.com failed, despite its exclusive clientele. Life Harbor Investments, a Cambridge, Mass. startup, ignored the warning and decided to go after clients with $500,000 of investment capital – clients that don’t qualify as high-net-worth investors, but who require more account servicing than investors with less money to play with.
Life Harbor secured seed funding from Bill Hambrecht, built up a partnership and began developing software that would streamline account management. Just seven months after its funding, in the fall of 2000, the company began to question its strategy.
“We could compete with the Fidelities of the world or we could service them. They have the same technology needs we do,” says Life Harbor founder and president Archan Basu. “The technology side of the business became much more attractive than the wealth management side.”
The company changed its name to Life Harbor Inc., abandoned its wealth management ambitions and began to concentrate exclusively on developing its software package. Last week the company closed a $5.8 million Series A deal to finance its growth plans. Led by a $3 million investment by Rob Stavis of Bessemer Venture Partners, the round also included commitments from Hub Angel Investment Group and WR Hambrecht & Co. Hambrecht and Stavis sit on the company’s board of directors.
“The software has a mix of operational and analytic efficiency,” says Bessemer’s Stavis. “It lets account managers make better decisions for customers and then implement them efficiently.” Stavis looked at a dozen business plans in the managed accounts sector of the financial industry before an introduction to Life Harbor this past summer through Hambrecht.
Life Harbor’s software is designed to let account managers monitor individual accounts, and all the accounts he manages, as well as maintain model portfolios, analyze performance, record trades and create customized reports. It was created by a management team drawn from the financial services industry itself: Basu was a portfolio manager with Mayo, Van Otterloo & Co. and the rest of Life Harbor’s management team was plucked from Cambridge Technology Partners, Citigroup Asset Management, Pioneer Investments and Putnam Investments.
“Financial services is about information technology and doing it well, but the horizontal software suppliers can’t compete in this market because you need vertical industry depth,” Basu says. “This company’s management team doesn’t look like the management team of a software firm.”
The company signed on its first customer, Boston-based MFS Investment Management, in March of last year. With the first version of its software on the market, the company plans to aggressively target the investment management industry, specifically the segment the company has dubbed sub-high net worth investors.
It will use this round of financing to build a sales and marketing force, a client services team and to build more features into the software package. There are currently 20 employees on staff, and the company would not disclose how many it will add. Although the company was “operating close to breakeven, this round allows [it] to go back into the red, build a force and put more feet on the street,” Basu says. The company plans to breakeven by the first half of next year.
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