Alphathena, an AI-powered, software-as-a-service platform that can build bespoke portfolios in a matter of minutes, has secured $4 million in a venture capital funding round led by ETFS Capital, a capital provider focused on ETFs and tech-enabled investment tools.
Named Best in Show at the 2023 Morningstar Fintech Showcase and featured in WealthManagement.com’s AI issue, Alphathena was created by CEO Mohan Naidu and CTO Tushad Driver to make direct indexing faster, more accessible and more engaging through automation, machine learning and natural language generative AI.
ETFS was joined in the round—which closed Dec. 5—by Hyde Park Angels, a start-up VC investor based in Alphathena’s hometown of Chicago, as well as DePaul University (Driver’s alma mater), a group of pre-existing investors and others.
Naidu and Driver have been making the conference rounds and demoing the tool since launching in late 2022. They quickly found interest had grown to a point where capital was needed for further platform expansion, improved support services and additional team members.
“This came together very fast in a matter of weeks,” Naidu told Wealthmanagement.com, noting that 2023 was a tough year for venture capital seekers. “We were very fortunate to really find the best partners we could have hoped for; ETFS Capital is a pioneer in ETF technology and index technology companies,” he said.
“They have a very niche thesis around this market and have spent a lot of time trying to understand what’s going on around the custom and direct indexing markets, so they understand the opportunity,” said Naidu. “And we were looking for the right partners who can provide not only capital, but value-added capital where they bring in their understanding and their expertise.”
The added capital will support a talent strategy—Naidu hopes to grow staff to more than 10 by 2025, from an existing team that includes the founders, two advisors and three board members—as well as further refinement of the user experience and expansion of platform services, including the use of generative AI to automate and simplify workflows. The expansion of API capabilities is also a key priority.
“Our goal is to really make it seamless and painless for any of our prospects and users to be able to use this product and have as few barriers as possible,” Naidu explained. “So, our vision is, in the next year and a half, we are going to be significantly more able to connect to a lot more systems and platforms, meaning any advisor, wealth tech platform, back office or front office solutions should be able to use our platform without a heavy lift.
Over the next five years, Naidu said he believes the trend toward personalization will present a wide variety of opportunities for further expansion of services and noted that the platform is capable of supporting any asset class. Having already begun work in the equities space, he suggested fixed income might be next.
The firm currently has a prospect pipeline of around 60 firms awaiting access to the technology, according to Naidu.
“We actually talked to them about coming on board as investors,” said Andrew Evans, founder and chief executive of a new registered investment advisory platform called Rossby Financial. “But the timing wasn’t right, so I’m really happy to hear this. Amazing stuff.”
When he saw Naidu and Driver at FutureProof last year, Evans said they delivered the “crispest” presentation and made him laugh. When he was able to demo the tool around Thanksgiving, he found the user interface to be among the best he’s seen.
“RIAs are going to dive on this thing,” he said, predicting wirehouses, broker/dealers and hybrids will be slower to adopt the Alphathena technology. He also expects the fintech to become a hot commodity among industry acquirers.
“I would be surprised if someone isn’t trying to buy them within two years,” he said.