In 1997, Andy Rachleff co-founded Benchmark Capital, which went on to invest in breakout Web-based companies like eBay (NASDAQ:EBAY), Zipcar (NASDAQ:ZIP), Ariba (NASDAQ:ARBA), Zillow (NASDAQ:Z) and Instagram. Then in 2010, he started his own tech firm, Wealthfront. The goal was to leverage Internet technologies to provide high-quality investment funds to mainstream investors.
I recently had a chance to interview Rachleff about Wealthfront, financial advising, IPOs and his Post-IPO Stock Sale Simulator, which can be found below.
Q: What is Wealthfront?
A: Wealthfront is an online financial adviser service for the tech community. Our clients are typically 25- to 35-year-olds who work in (Silicon) Valley at tech companies. Many either will or have gone through a recent IPO or acquisition. Our online service makes it easy to receive a sophisticated managed investment plan at a price that is 75% lower than traditional financial advisers. There are no advisory fees on a customer’s first $25,000 under management, and only a fee of 0.25% above this amount. The company is backed by Valley luminaries, including DAG Ventures, and individual investors, including Marc Andreessen, Jeff Jordan and partners from Benchmark Capital, Index Ventures and Kleiner Perkins Caufield & Byers.
Q: You just launched a new simulator for IPOs and stock options?
A: One of the most popular questions we get from our clients who work at companies like Zynga (NASDAQ:ZNGA), LinkedIn (NYSE:LNKD) and Facebook is “How should I decide when to sell my options?” When they go to a financial adviser, they usually do not get good answers. One reason is that many of these advisers do not have a background in IPOs and stock options.
Another issue is that the incentives may result in bad advice. For example, an adviser may recommend selling stock so as to get more money under management to generate more commissions.
We developed the simulator to help our clients — and anyone else who might be interested — determine which post-IPO sale strategy might result in the maximum proceeds based on the trading histories of companies that have gone public in the past. Our tool includes five strategies to start: hold all your stock, sell 10% per quarter, sell 10% of remaining shares per quarter, sell 50% up front and 10% per quarter thereafter and sell all immediately post-lockup.
Q: Any more plans for the simulator?
A: Depending on the response, we plan to make updates. Some ideas include adding more companies and adding the ability to customize your sale strategy.
Q: What’s your take on IPOs for the year?
A: I think IPOs are good for the issuer and Silicon Valley. They result in more credibility, which usually leads to more customers. Based on the positive reaction to some recent tech IPOs, I think you will begin to see an accelerating number of highly qualified companies attempting to file a registration statement. Ultimately we hope this results in an IPO Renaissance in the Valley.
Q: What is it like to go from being a VC to an tech entrepreneur?
A: A lot harder than I expected!
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.