Online investing service Betterment announced today that it has raised $3 million in a first round of funding led by Bessemer Venture Partners.
Betterment lets users transfer money to their accounts and decide how much of it they want invested in the stock market and government-backed treasury bonds. Stocks are typically a little more volatile in the short term, whereas treasuries have a guaranteed yield but generate a much smaller return. The idea is to let users pick just how much risk they want to take on their savings.
The company, which is an SEC and FINRA licensed investment advisor, chooses which stocks to buy and puts the individual securities into each user’s account. Betterment does not charge its customers a per transaction fee like most online brokerage accounts. Instead, it charges a management fee of 0.9 percent of the average annual balance. Betterment accounts are as liquid as a savings account, with the money transferring directly to and from users’ checking accounts.
The New York, N.Y.-based company’s founders invested $640,000 to pay staff, create technical infrastructure, and build capital reserves required by the SEC. It launched at TechCrunch Disrupt earlier this year and is already managing millions of dollars in investments. The newest round of funding will be used to expand the size of the team and prepare for new product launches later this year.
Betterment also launched a new government-backed treasury bond portfolio that is supposed to be less sensitive to interest rate changes. When the economy turns south, many investors typically flock to treasuries in order to keep their money safe. That drives interest rates down. The newest addition to its investment portfolio is likely a response to the current investment environment, which is at best a complete snafu.
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