Launching a business, especially one in a space as heavily regulated as financial services, requires extremely careful planning. We talked to Vestive co-founder Mik Breiterman-Loader about some of the challenges his business went through before launching and how his business will differentiate itself.
Sustainable investing is the core of Vestive, and while many may look at it as a relatively new trend that is yet to be fully tested, Vestive believes it's the best form of investing. The strategy revolves around generating not only monetary returns but also investing in companies that are focused on bringing about positive social or environmental impacts.
While sustainable investing may seem like a brand-new concept to some, Vestive launched just like any other business. It's the result of careful planning and creative ideas. Creating Vestive required a business plan, financing and green lights from numerous regulating bodies just like many other new businesses do.
Can you describe Vestive?
Sure. We're an online investment advisor, which means you kind of… You come to our site, you answer a few questions about yourself and then we create a portfolio that's customized for you. What makes us special is our investments. We call it sustainable investing. What that means is we incorporate environmental and social factors into what we're investing in for you.
This results in a portfolio, and our goal is to make just as much money as if you didn't care about sustainability. But your portfolio ends up being lower in carbon footprint. It ends up being much higher in the alternative energy companies we invest in. Higher in the amount of companies that have women in leadership positions. We eliminate gun manufacturers, tobacco manufacturers, among a number of other issues that we kind of bucket into what we call sustainability.
It's a pretty clear value prop and differentiator. What was your thought process in coming up with this idea?
My background is in finance. I worked for a long time at Morgan Stanley Investment Management, and part way of my tenure there we had some clients who were asking about something like sustainable investing. We didn't have a title for it yet, and we didn't have a real philosophy on that, so myself along with a couple others put something together that we thought made sense. And kind of balancing a double bottom line, kind of these dual objectives of the financial objectives, as well as the sustainability objectives. And it ended up being a really successful part of the business. Clients would say that we were kind of leaders in the field in doing this, and that part of the business grew a lot while I was there.
In chatting with friends and family of mine, they kept saying, "Hey, that should exist for the average investor, the everyday person." And I assumed that it existed in the world. But as I searched, I didn't find it and definitely thought this should exist. And I realized it was a growing field, a new field and that now was the perfect time to launch something for the average investor.
That's kind of the genesis for the idea.
At what point did you realize that pursuing this idea would be a full-time job?
I think it was a combination of things. A lot of it is momentum in demographics and shifting preferences. Over the past, say, five years, there's been a lot of studies on millennial preferences and millennials demanding all sorts of new things in their products. From everything from food to consumer products to also investing.
One of the big statistics we point out is a survey done somewhat recently that says, like, 86% of millennials are interested in incorporating sustainability into their investments. That combined with the growing millennials being the bigger, bigger part of investable assets lead us to believe that there's a strong market for this. There's a lot of talk about millennials carrying a lot of student debt, but there's also a lot of talk about millennials driving a decent amount of assets as well.
A combination of these demographic changes and timing led me to believe it made a lot of sense. There's also been a lot of talk about how this cohort of people aren't necessarily wanting to have an in-person, face-to-face meeting with a lot of services that used to be that way, and financial services being a big part of that, so having an online-only experience is also something that has been changing in the financial industry, especially in the investing industry.
Kind of a perfect storm of some overall industry-wide factors, and then as well as a number of kind of more specific technical reasons. A business like Vestive couldn't have existed five years ago. There's been a huge launch of sustainable focused ETFs that have come down in price. Like, almost orders of magnitude to make it financially feasible, so that's a big part of it. And then, lastly, on the operational side, there's been a few companies launched in the past five or so years that make investing in small amounts, things like fractional shares, much easier and lower cost to implement.
What were some of the biggest unexpected hurdles that you faced on the way to your launch?
One big hurdle that we had to face was regulatory. We are an SEC-approved, registered investment advisor. And that allows us to invest people's money... You know, from a regulatory perspective. And the process is definitely... It's improved a lot recently, but it's still very much geared towards thinking of an old-school financial advisor.
We had to do a lot of work in making sure all our i's were dotted and t's were crossed in a framework in a regulatory environment that's more used to traditional financial advisors. They've definitely improved a lot recently, but that was kind of a big hurdle or number of hoops for us to get through. That was a big one, regulatory.
The second is just operational, and I kind of lump security into that as well. For start-up companies, if your food is delivered late or something like that. Right? Make a mistake, it's not that big of a deal. But for an investment company, start-up company, our margin for error is very low. Just a lot of testing, hiring outside people to make sure that our security is top-notch. Ensuring and just having a really rigorous testing to make sure all of our processes are working correctly. That when we link the bank account to make investments that it all happens very securely and smoothly.
I guess a number of things that... Just because I think for fintech companies, for health-care companies, things where you're dealing with people's livelihoods, you want to make sure that you're right, even if it’s the first time, which is a little bit different than the general start-up ethos of fail fast. You never want to fail when you're dealing with people's investments.
Since you guys have launched, what are some unexpected issues that you've been running into?
Thus far we have been pretty smooth. I think that... I'm trying to think. We haven't had any catastrophic issues, which... thankfully. There are small things here or there, someone has an obscure bank account that they've had for a long time that doesn't... Isn't available in our regular flow of linking it, so we kind of have to create some alternative ways of funding someone's account.
But overall, it has been a pretty smooth process from an operation's perspective. The biggest thing for us is communicating to people and getting the word out there that we exist, and articulating our value proposition in a way that reaches people. And so I'd say that has probably been our biggest challenge post-launch.
Did you guys ever consider any debt or equity financing?
Yeah, so we do have a small amount of equity financing. Mainly through friends and family who we're close to. To essentially help keep the lights on and run the operations of the business. And we'll probably look for kind of more traditional VC-type equity financing in the near future.
From a debt financing perspective, we haven't considered it. For a business like us, where it's a very scalable business, I think that that suits itself well to equity financing, so that would probably be our primary source of financing, at least for the near-term future.
It seems like you're adding a lot more capabilities, like specifically revolving around retirement accounts. What was your thought process in designing this road map?
Yeah, I mean, a lot of it is kind of based on who we think is our most interested customer. You know who our target demographic is. And I was saying a little about this earlier, but the people who are most interested in sustainability and sustainable investing tend to be kind of a younger generation.
People who are most interested in having an online-only experience and not getting an in-person, face-to-face meeting with a financial advisor, but getting less than half the cost of your finances managed tends to be a younger person as well. Given all of that, our core customer is someone 25 to 40 years old, which is still admittedly a pretty large range. But those are people who are mainly investing for long-term horizons. Investing for retirement, having retirement accounts available seems like a really important thing for the goals of our target demographic. That was a big part of kind of driving that decision. Also getting those out before the April 15th tax deadline of last year, for 2018 contributions, was a goal of ours. A little bit of timing.
For us, probably the biggest thing going forward is to create a mobile site. Right now it works on mobile but only to a certain extent. Getting it fully functioning on mobile, given how much young people spend on their phones. And then kind of adding a number of other kind of capabilities, like custodial accounts. You know we've had people say, oh, they want to open up an account for their child or a niece or nephew or even grandchildren. That's another big thing that we're looking to add in the near future as well.
And then we've also had a lot of requests... You know, given the other tropes and stereotypes about millennials, that they switch jobs a lot. People have talked to us about, "Oh, yeah, I have this old 401(k) that I really would like to consolidate." Having the capability of rolling over old 401(k)s from your last job, or even two jobs ago, into retirement accounts is something that we're building out in the near future, and also helped... You know, help us in making decisions to prioritize retirement accounts, and so it's helpful beyond just the immediate use case.
I do know that sustainable investing is a pretty big and hot term right now. I'd imagine there's either a number of pretty big competitors or big players entering the competitive landscape.
How do you plan on continuing to differentiate your product?
Yeah, so a big part of it is that because it's our focus, right? The entire experience, entire product is designed with sustainability in mind. That can mean everything from... You know, like, the existing robo advisors, like Betterment, who’s probably the most well-known in the space. They can do a little bit on the side, but the way that they have chosen their asset classes, the way that they've modeled their kind of investment algorithm, means that they can't... They can't be as holistically sustainable as us.
It's integrated into our investment algorithm in a way that tries to focus on all of these different sustainability metrics. They're just not able to do that because it's kind of a feature, as opposed to the product. But it's not just the investments, it's also... A big part of what we do is show people the impact, like quantify the measurable impact. Showing people what their reduction in carbon footprint is. Showing people how many more companies have women in leadership positions. And that is integrated into the UI of the site.
Big companies, they can allocate it and have it as a feature, right? And say, "Hey, we're investing 10% of your portfolio sustainably." But when you log into your account, the dashboard just has your financial returns and your holdings, and that's about it. They aren't able to incorporate all of this stuff that we have into it because it's just not the focus of what they're doing.
There are some other technical reasons, in that... In some cases, like, the big players are, in fact, a little bit too big to do this. It's still a growing field, and some of the funds that are low cost and really good financially from a financial perspective, as well as from an environmental and social perspective, they are kind of small. And so if you have $20 billion in assets and even a fraction of people want to switch into that, you can't... There's not enough things to buy. Whereas for us, we're a little bit smaller, and so we are able to create portfolios that meet all that criteria.
Five years from now, if we're as big as them, that's a problem that we'll be happy to have, but the rate at which these sustainable investing vehicles have been growing, it shouldn't be an issue. If five years from now, maybe Betterment could do all that we can do, but by then I think that our product will be differentiated enough. I think it's differentiated enough now, but I think there will be even a greater moat for us in the future.