The pending sale of a majority interest in Auburn-based financial adviser software company Riskalyze Inc. to London-based private equity firm Hg is valued at more than $300 million.
The Hg deal, which is expected to close in September, cashes out San Francisco private equity firm FTV Capital, which invested $20 million into Riskalyze in 2016, at four times its investment, according to a letter Riskalyze sent to its shareholders.
The earliest investors in Riskalyze fare even better, with 50 times their investment, made to the 2011 startup during seed rounds in 2012 and 2013. Later angel investors into Riskalyze, who generally invested in 2014, will see a 21-times return on their investments, according to the shareholder letter.
On his Facebook page, Riskalyze founder and CEO Aaron Klein said the investment by Hg "is a huge step forward" to recapitalize the company,. He said he will be reinvesting the majority of his holdings into the company, which he will continue to lead as CEO with the existing management team.
Klein told financial advisory industry news site RIABiz that the deal was meant to allow early investors to cash out.
“It was definitely time to allow (early investors) to get liquidity and replace them with a longer-term investor for the future. That’s what this deal is about,” Klein told RIA.
The board of directors of Riskalyze has approved the deal, but more than 50% of the shareholders of the company must approve the deal for it to happen.
The shareholder letter said Hg wanted to have a simpler shareholder roster than the company had with its multiple tiers of investors.
Riskalyze spokesman James Moock said he couldn’t confirm the shareholder letter, which the Business Journal has seen. “No comment,” he said.
“This is a big deal for Sacramento,” said Dave Sanders, a managing partner with WorldBridge Partners and a longtime member of the Sacramento Angels, a group of 70 people who invest in early-stage companies. He did not personally invest in Riskalyze, but he said some members of Sac Angels did.
Private equity investors cashing out previous private equity investors is a growing phenomenon as more investors seek alternatives to equity markets, Sanders said. The success of some of these angel investors will likely make them want to invest in other startups, he said. Angels are accredited investors who can withstand the total loss of their investment.
Riskalyze has 175 employees in offices in Auburn and Atlanta. The majority work in the Auburn office, said spokeswoman Allie Zendrian. Riskalyze is private and does not share revenue numbers, she said.
Hg is a major investor into software and services companies. It has invested into a total of 35 companies, including 10 financial technology companies, according to its website. It has more than $37 billion in funds under management, and it has offices in London, New York and Munich.
Riskalyze has developed a series of products for the financial services industry, including wealth advisers, retirement investment advisers and stockbrokers. The 2011 startup launched with a proprietary risk assessment product that measures individual investors' risk tolerance, and has gone on to develop other analytics tools and a compliance product for financial advisers.
Riskalyze said its platform supports tens of thousands of financial advisers who use it to manage millions of client accounts with over $400 billion in assets.
