Capitalize, a startup focused on automating 401(k) rollovers, raised a $19 million Series B led by existing investor RRE Ventures.
The big picture: Amid an increase in job-hopping and an aging population, 401(k) rollovers have become a big opportunity for financial firms.
Context: Rollovers have turned IRAs into a larger part of the retirement pie for Americans than the 401(k), totaling $14.3 trillion vs. $11 trillion, respectively, per the Investment Company Institute.
- Americans rolled over about $779 billion into IRAs in 2022, according to Cerulli Associates. That’s up from about $404 billion in 2013.
Flashback: Capitalize was founded as a way to find old 401(k) accounts and automate away the heavily manual process of moving it over into an IRA, easing the notoriously difficult rollover process.
- Marketed directly at consumers, the company made a referral fee, akin to NerdWallet’s business model, by suggesting various products.
Capitalize launched an “enterprise” product in 2022 that now accounts for over 50% of its business, CEO Gaurav Sharma says. It counts Robinhood, SoFi, Ellevest, Betterment, and Schwab among its customers.
- Instead of requiring consumers to seek out Capitalize, the new business allows consumers to access the company’s tech from inside Schwab or Betterment, switching old 401(k)s to IRAs on those platforms.
- Its then paid per rollover by the Robinhoods and SoFis, typically a flat fee.
- This comes as investors have become increasingly bullish on the embedded finance part of the fintech economy.
- “When they unlocked that, I jumped in as its a much more economical way of acquiring customers,” says RRE General Partner Raju Rishi.
Between the lines: Capitalize’s fundraising comes as consumer-facing fintechs — which makes up several of its customers — have been under pressure to diversify and cross-sell to existing customers in a bid to steady revenue.
