Editor’s note: Joe Polverari is chief strategy and development officer of Yodlee.
When LearnVest, one of the hottest startups in fintech, announced its acquisition by Northwestern Mutual, the $250 million deal raised some eyebrows. While this partnership may seem unlikely at first, it actually makes a lot of sense for both parties.
LearnVest launched in 2009 as a financial planning service for women. It has since expanded as a platform that connects both women and men with human financial advisers, amassing 1.5 million users and tens of thousands of paid subscribers. The startup raised $75 million in venture capital, with Northwestern Mutual investing in its most recent round.
LearnVest is a prime example of the boom going on right now in the financial technology services space. According to CB Insights, more than $1 billion has been invested in financial startups in the past three years, and investment in fintech companies has grown four times faster than venture investing overall.
Since 2008, global investment in fintech ventures has tripled to nearly $3 billion and global fintech investment will more than double by 2018. The acquisitions market is thriving as well. Intuit acquired bill pay app Check for $360 million last May and budgeting platform Mint.com for $170 million back in 2009. Last February, Spanish bank BBVA snagged online-only Simple bank for $117 million. More recently, Capital One bought budgeting app Level for an undisclosed amount.
The success of LearnVest and other fintech startups provides a number of valuable lessons for young companies in any sector. To start, LearnVest picked a pain point that really needed a solution. Americans are drowning in debt. U.S. consumers owe $11.52 trillion to lenders and creditors. An astonishing one in three American adults with a credit history are delinquent on their debt and the average family has $7,630 in revolving debt.
Helping Americans stay out of debt, save money and achieve their financial goals are pervasive and high-priority needs, and LearnVest came up with a simple approach to addressing them.
Savings statistics for most Americans are bleak, as well. The balance of the average American family’s savings account is $3,800 and 56 percent of Americans do not have rainy-day savings to cover three months of unanticipated financial emergencies. One in four American families has no savings at all. More than 90 percent of working households do not meet conservative retirement savings targets for their age and income.
Helping Americans stay out of debt, save money and achieve their financial goals are pervasive and high priority needs, and LearnVest came up with a simple approach to addressing them. The startup built tools to help people make better financial decisions and gain more control over their fiscal lives in a way that was more cost-effective and accessible than traditional financial planners. LearnVest identified clear pain points and a target audience that needed a way to solve them.
The Millennial Factor
LearnVest’s growth also stemmed from the fact that its target audience was millennials. By focusing on millennials, LearnVest tapped into a valuable and underserved group of consumers.
Millennials are the biggest generation in U.S. history. This generation of digital natives is about to move into its prime spending years and exhibit fundamentally different financial behaviors than the generations before them.
For example, they have proved far more reluctant to make major purchases, such as cars and homes. They also hold very different attitudes about banking and credit. Big banks represent 4 of the 10 least-loved brands by millennials, according to the Millennial Disruption Index, and one in three believe that they won’t need a bank at all in a few years.
This generation is reluctant to seek professional financial advice and have a negative 2 percent savings rate. 63 percent of American millennials have no credit cards, nor do they seem to want them. Old approaches to financial services will not hold up for long.
These data points overwhelmingly demonstrate the massive potential that exists in creating new financial products that cater to millennials. As a result, more than $1 billion was invested into tech-driven personal finance companies ($261 million in the second quarter of 2014 alone) with a special emphasis on startups targeting young investors. This new guard of financial services products is “user-friendly, low-cost and mobile-enabled.”
LearnVest exemplifies this type of service. Its modern approach to managing money is targeted originally to young female professionals, now spanning young professionals, complete with a blog dedicated to their needs and interests, a mobile app, an intuitive interface, etc. By acquiring LearnVest, 158-year old Northwestern Mutual gains a pipeline into the millennial market.
Deals in Data
LearnVest also leveraged data science in order to better serve its customers, building it into the company from the get-go. Data science is essential to building a successful company today. Advancements in big data, analytics, and machine learning have enabled companies to gain greater insight into their customers than ever before, not to mention provide personalized recommendations and even make predictions.
In financial services, young companies have been able to punch above their weight class by intelligently integrating data.
In financial services, young companies have been able to punch above their weight class by intelligently integrating data. For example, LearnVest uses data to make smart matches between users and financial planners, which not only cuts out the manual resources required to make matches, but also increases customer satisfaction because they are paired with planners suited to their needs.
As the company grew, LearnVest doubled down on investing in new, innovative ways to leverage data in order to better understand and serve its customers. It hired Netflix’s director of data science and engineering in 2013 to become its director of analytics and make data a central part of its product, marketing and strategy.
Focusing on data helps companies be more agile and optimize their operations, and it opens doors for new products down the road. It also looks pretty appealing to potential investors and acquirers.
Having a Vision
In addition to solving a big pain point, catering to millennials, and leveraging data science, LearnVest also mastered the art of communicating its overarching vision.
Alexa von Tobel is more than the CEO of LearnVest — she has emerged as a well-known thought leader in the financial tech space. She authored a New York Times bestselling book titled Financially Fearless, actively contributes to prominent news outlets, and regularly speaks at conferences. She has also been named to scores of “top” entrepreneur watch lists and is widely known as an expert on and advocate for financial health. Her vision and persona have been a major driver in the success that LearnVest has achieved.
Entrepreneurs can learn from her example. Startups looking to grow and scale should identify a spokesperson for their company, devote time to formulating the company’s vision and message, and dedicate resources to growing the company’s visibility by contributing to the conversation in the industry. Contributions can include participating in online forums, creating contributed content, speaking on panels and more.
These efforts are about more than marketing. They are about spreading the word about your company’s mission as far as possible and positioning it as a leader.
LearnVest did a lot of things right and it will be interesting to see what’s ahead. The company plans to continue operating independently and Northwestern Mutual will use LearnVest’s technology with its own clients and financial representatives. It may seem like a surprising partnership, but as Northwestern Mutual CEO John Schlifske told Forbes, “this was very clearly a match made in heaven.”