Goldman Sachs Leads $25 Million Financing in Startup Motif
Motif Investing Inc., a Web-based startup that lets investors buy baskets of stocks based on themes like home improvement and Obamacare, raised $25 million in a financing round led by Goldman Sachs Group Inc. (GS)
Darren Cohen, who leads Goldman’s principal strategic investments group, is joining Motif’s board as an observer, the San Mateo, California-based company said today in a statement. Existing investors Foundation Capital, Ignition Partners and Norwest Venture Partners contributed to the round.
Founded in 2010, Motif is among an increasing number of startups offering online products for investors that are designed to lower the cost of trading while avoiding high- priced, poor-performing mutual funds. Jemstep Inc. and FutureAdvisor provide asset-allocation advice and help clients easily make the recommended trades, while Wealthfront Inc. manages money online by investing in low-fee index funds.
“This space is heating up,” Hardeep Walia, 40, Motif’s chief executive officer, said in an interview. “If you think about what we’ve done in Silicon Valley, we’ve disrupted so many businesses, but no one’s traditionally had luck in financial services.”
Motif offers custom-made and user-generated funds of up to 30 stocks for about $10. To date, the company has focused on providing retail investors an alternative to exchange-traded funds sold by companies like E*Trade Financial Corp. (ETFC) and Charles Schwab Corp. (SCHW)
With the additional financing, Motif is rolling out the software to investment advisors, giving them products to offer clients without management fees attached.
For example, brokers could sell a fund created by Motif, use one created by someone else that’s available on the site or establish their own by copying what’s in a particular mutual fund.
“That allows them to save the 2 to 3 percent fees they’re paying every year to mutual-fund companies,” Walia said. “They can either take that as a reward for their business or pass the savings along to customers.”
Motif has 40 employees, including several early executives from E*Trade. The company has patent-pending technology that lowers the cost of volume trading, letting it make “good margins” at $10 a trade, Walia said.
The Obamacare motif includes shares of hospitals like HCA Holdings Inc. (HCA), electronic medical-records providers such as Cerner Corp. (CERN) and generic-drug maker Actavis Inc. (ACT) The fund is designed for investors looking to benefit from the Affordable Care Act, which may extend coverage to 30 million previously uninsured Americans.
There’s also a motif called Ivy League that follows the investment strategy of David Swensen, chief investment officer at Yale University. Other motifs focus on biotechnology breakthroughs, the natural-gas glut and the housing recovery.
The Goldman Sachs group leading the investment is part of the bank’s securities division and backs financial-technology startups and market structure-related companies. Previous investments include the London Metal Exchange and Broadway Technology LLC, a provider of electronic-trading systems.
In today’s release, Cohen of Goldman Sachs said Motif “has taken an innovative approach to traditional investing.”
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