Can Acorns Do Any Damage in the Investment World?

acorns

How fast could your spare change add up if you were investing every penny over a year’s time? With the Acorns app, your leftover change is automatically placed in an investment account. This new program was developed by the Acorns company. It’s only been around for a little under a year and its already making waves in the financial news sector as an up and coming company that shows great promise.

What is Acorns?

Acorns is a new app that is designed to remove all of the hassle and stress involved with setting up an investment account for new investors. It also manages the way that your money is invested using a built in formula that sends spare change automatically to your investment account. If you purchase an item for $5.75, it automatically sends $.25 to your investment account, hence, the principle of investing spare change. This is a new and innovative approach to beginner investing that helps people who are new to this industry to get their feet wet with the processes. It works with a smartphone and sends the money to a portfolio of ETFs or exchange traded funds. The app is linked to the users’ bank accounts and rounds up the amount of every purchase made.

Who founded the company

The founders of the company include co founder and chairman Walter Cruttenden and co founder Jeff Cruttenden. Together, this father and son team founded the company on Feb. 29 of 2012. They have grown to a company that has over one hundred employees and has gained more than six hundred and fifty thousand registered customers. Their goal was to create an app that would make investing easy and from all appearances, they’re showing success in reaching their target audience

Fundraising

In June of 2012 the stats show that they began the company with three hundred thousand in seed money. In October of 2013 they raised $2.5 million in series A funding with three investors. In March of 2014 an additional $6.16 was raised in series B funding with two investors. Yet another round with series C funding yielded an additional $23 million in Series C funding and backing from e.ventures and Greycroft Partners leading the 4 other investors and in April of 2016, they raised another $30 million in series D funding with Paypal and two other investors’ backing.

Reasons for current success of Acorn

The Acorn company has taken the approach that uses two very attractive features for new investors. The first is that the process of investing has been automated. This makes it a fast, easy and convenient way to start investing, and a large percentage of the over six hundred and fifty thousand users are younger people age thirty five and below, about seventy five percent in fact. The second is that the app is incorporated with smart phone use which is one of the most popular devices used among the younger crowd.

New customers use the app with small investments that are automatically withdrawn from their accounts based on the spare change ideal, but they can also invest larger amounts. The app helps them transition into the world of investing in a slower and more methodical way that is less frightening and intimidating for first time investors. They learn that they can make larger investment amounts in the form of lump sums any time that they want. The app allows them to get a feel for how investing works before they really jump into it.

Learning about risk with investments

The portfolio options with the Acorns’ program is failry diverse with six different risk levels. There are a few tools involved to help investors understand their risk and to manage the investment including Wealthfront and Betterment. Thes programs act as a go between so clients don’t need to have contact with the investment brokers themselves because they do all of the management for them.

What does the future hold for Acorns?

As of now, the company is still growing, but one area of concern is that users only have a fifty percent conversion for funding their accounts after sign up and registration. It shows that more work needs to be done to help increase the conversion rate from sign up to actual investment activation. This is perhaps one of the greatest challenges that the company faces at this time. Part of the problem may be assigned to the fact that it is the younger crowd that is initially signing up. More needs to be done to investigate and follow up with a strategic conversion plan.

Can Acorn do any damage to the investment world?

From our perspective, this is highly unlikely. The company currently has under a million subscribers with an average fifty percent conversion rate. Those who do use the app could go on to diversify their portfolios with other investment brokerages. If anything, the Acorn app may be setting the investment world up for greater success in the near future. Since the app gives clients an introduction to how the investment world actually works, it may be more of a foundational app that lets them know how the investment game works. Those who don’t actually follow through may return a few years later and search for an investment company with user friendly services. We believe that Acorns services may actually enhance the investment world over the next decade or so.

Final thoughts

Acorn is too new to assign any real judgments about its future. They’re onto something innovative and new and it certainly does have an appeal to the younger crowd. We believe that this company has a fighting chance for making some great waves in the investment world if it can work out a few of the kinks and get new registrees to actually follow through with use of the app. It’s a great concept and it’s obviously catching on as a novel idea with younger users. Acorns has plenty of funding to back their magnificent team of quality experts so we’ll have to wait and see what the formulation produces. We think that they are an up and coming company that has a great idea that could take off in an upward direction at any time.


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