VCs chased crypto and passed on his “boring” startup—then he raised $385M at a $2B valuation. | Aaron Schumm, Founder & CEO of Vestwell

The boring 401(k) business that became a $2bn company

Vestwell is the white-label plumbing behind American workplace retirement plans. Employers, advisors and financial institutions all need to offer a 401(k), and none of them want to build the record-keeping and fiduciary machinery themselves, so Vestwell sells it to them on long contracts and lets the partner keep the client relationship. The model looked dull next to crypto and it compounds slowly rather than in bursts, which is why the enterprise trust behind it took years to earn.

Takeaways

• Vestwell sells retirement infrastructure through channel partners. Vestwell sells 401(k) software to financial institutions and payroll providers, never direct to employers. Partners sign five to ten year contracts with minimum commitments, priced per employer and per saver per month. Two and a half million people save on the platform.
• The idea came from his own bad 401(k) plan. At FolioDynamics, the platform he co-founded and sold to Envestnet, his own employees wanted a 401(k). The plan an advisor sold them was clunky and expensive, and the advisor said he could not give advice. Vestwell started in 2016.
• Morgan Stanley was the product market fit moment. He says it took a few years, probably 2020 or 2021, when Morgan Stanley signed Vestwell as a core component of Morgan Stanley at Work. The retirement industry is fifty-plus years old and complicated, so entrenching with its players takes time.
• Series C was hard because crypto was hot. Vestwell raised mid-2021 when VCs were chasing crypto and payments and saw a retirement plan administrator as dull. He had met investors in early 2016 and kept them in the boardroom, so FinTech Collective led the seed and F Prime led the Series A.
• He never hired the C-suite early. Every early hire started at VP or SVP, leaving room to layer someone above them. He kept underperformers roughly three months while hiring behind them. His rule is that you never regret firing someone too soon.
• His 2016 estimate was a couple hundred million. Today he puts Vestwell's total addressable market at $100tn. The company has more than $200m in ARR and a $2bn valuation after a $385m round, with industry-low churn that he says reset the bar for the industry.

Winning enterprise accounts takes years

1. In 2018 or 2019, as a forty-person company, Vestwell lost JPMorgan's RFP to a rival vendor.
2. He stayed in touch with the account every quarter for the next three years rather than walking away.
3. The winning vendor fell apart and Vestwell took the account three years after losing it.
4. John Hancock reached the finish line with Vestwell before the deal collapsed for internal reasons, and later became one of Vestwell's largest partners.