With $24m Raised, Why is He Building FinTech On Back of Advisors?

Aaron Klein

In Episode #728, Nathan interviews Aaron Klein. His career has largely been in the intersection of finance and technology. As co-founder and CEO at Riskalyze, he led the company twice to being one of The World’s Top 10 Most Innovative Companies in Finance by Fast Company Magazine. Today, over 150 riskalyzers served thousands of advisors. Aaron has served as a Sierra College trustee and in his spare time, co-founded a school project for orphans and vulnerable kids in Ethiopia. Investment News has honored him as one of the industry’s 40 Under 40 executives.

Famous Five:

  • Favorite Book? – Extreme Ownership
  • What CEO do you follow? – Ben Horowitz
  • Favorite online tool? — Twitter, Evernote and Uber
  • How many hours of sleep do you get?— 7
  • If you could let your 20-year old self, know one thing, what would it be? – “The most important skill that you will ever have in starting a company is making great hiring decisions”

Time Stamped Show Notes:

  • 01:15 – Nathan introduces Aaron to the show
  • 02:07 – Riskalyze’s mission is to empower the world to invest fiercely
  • 02:20 – An average consumer struggles to invest and understand the concept of investing
  • 02:39 – Warren Buffett said “Stock for the one thing the American consumer refuses to buy when they were at their cheapest and only wants to buy at their most expensive”
  • 02:48 – Riskalyze invented risk numbers that they can create for short-term
    • 03:06 – Riskalyze’s focuses on the short term
    • 03:43 – The harm usually comes from short-term decisions
  • 03:58 – Riskalyze needs a context to understand how to make a good short-term decision
  • 04:11 – Investors who don’t use Riskalyze would normally ask if the 2% down on their portfolio is still okay
    • 04:18 – 8% of that portfolio is actually normal
  • 04:56 – “We tend to stereotype people based on their age”
    • 05:12 – The typical questions in the industry would often base on the age of the investor
  • 05:41 – Riskalyze has a team of academics who delve into the data and methodology behind the risk number
  • 06:00 – Riskalyze’s technology helps the advisor assess how much risk they can handle in a quantitative-objective way
  • 06:27 – Riskalyze works with financial advisors and helps their investors become more successful
  • 06:45 – Riskalyze is a SaaS business
  • 06:48 – Riskalyze is launching their auto-pilot platform
  • 07:19 – Pricing starts at $145 a month
  • 07:36 – Riskalyze was launched in 2011
  • 07:41 – Prior to Riskalyze, Aaron was in a brokerage firm and saw firsthand how poorly average investors thought about risk
  • 07:54 – Aaron told his financial advisor friend about the risk and they founded Riskalyze
    • 08:07 – Equity was 50/50 at first
    • 08:27 – They’ve raised and brought in investors along the way
  • 09:03 – Investors have seen a good return of up to 10X
  • 09:48 – Riskalyze is currently focused on going to financial advisors first
  • 09:59 – Riskalyze was capital efficient
  • 10:02 – First round of funding was around $420K all equity
  • 10:23 – Riskalyze is a substantial business and their ARR was a multiple of the capital deployed
  • 10:40 – Total funds raised to date is $24M
  • 11:10 – Team size is 175 from 90 last October
  • 11:24 – Based in Auburn, California
  • 12:21 – Riskalyze currently serves 19K advisors
    • 12:25 – There’s no free plan
  • 12:42 – Advisors are known to be money efficient
  • 12:59 – Riskalyze tried a free version
    • 13:23 – The plan was originally $99 a month
    • 13:40 – After they tested to push the price up, their conversion rate tripled
  • 14:10 – Gross annual churn
  • 14:32 – Riskalyze typically loses an advisor to retirement or death
    • 14:48 – Riskalyze found a solution for retirement
  • 15:33 – Aaron doesn’t have the number for their net expansion RPU yet
    • 15:50 – Riskalyze rolled out their advisor product in March 2013
    • 15:53 – Then, they went into hyper-growth mode, from 380 customers to 2000
    • 16:24 – They lost track of the data with only 4 people
  • 16:50 – Cost to acquire new customers
  • 17:10 – LTV
  • 18:00 – Nathan recommends Klipfolio as a dashboard for Aaron
  • 18:15 – Aaron rolled out a premier tier of Riskalyze in February which is $225
  • 19:18 – Average MRR
  • 21:30 – Aaron shares why Warren Buffett recommends investing in Vanguard
    • 21:31 – Vanguard fits the people who are in their 70s and 80s
  • 22:04 – Buffett also said that going to an advisor isn’t necessary
  • 22:18 – Aaron believes that Vanguard should still be a part of a person’s portfolio; but what about someone who is a risk 45 and Vanguard is a risk 78?
  • 24:45 – Nathan never went to an advisor as he found them fishy
  • 25:15 – Aaron doesn’t have any financial advisors at the moment but he will in 2-3 years
    • 25:20 – Aaron believes that an advisor can help him maximize the money that he has for the future
    • 26:08 – The reason to use an advisor
    • 26:32 – Riskalyze wants people to get risk aligned with the risk they can handle
  • 26:48 – Advisor charges a flat fee based on the investor’s asset
  • 27:34 – The value of human vice
  • 29:14 – The Famous Five

3 Key Points:

  1. If an average consumer knows his risk number, he will be more confident to invest.
  2. An advisor will not only help you manage your money, but show you how you can grow it.
  3. Focus on your hiring—this will contribute to a fast-growing company.

Resources Mentioned:

  • The Top Inbox – The site Nathan uses to schedule emails to be sent later, set reminders in inbox, track opens, and follow-up with email sequences
  • Klipfolio – Track your business performance across all departments for FREE
  • Hotjar – Nathan uses Hotjar to track what you’re doing on this site. He gets a video of each user visit like where they clicked and scrolled to make the site a better experience
  • Acuity Scheduling – Nathan uses Acuity to schedule his podcast interviews and appointments
  • Host Gator– The site Nathan uses to buy his domain names and hosting for the cheapest price possible
  • Audible– Nathan uses Audible when he’s driving from Austin to San Antonio (1.5-hour drive) to listen to audio books
  • Show Notes provided by Mallard Creatives