Nutmeg and the search for new CEO

On its first birthday, in October 2013 the CIO of Nutmeg said it had no direct competitors in the U.K. March 2016 reports that Nutmeg is searching for a new CEO. Just about a month ago Nutmeg announced a cut in its fee levels and then there was Twitter #Applesandoranges dual. According to Oliver Wyman, the digital wealth management market is predicted to be worth GBP 30 billion by 2019. This makes a good enough case for any robo-advice to keep fighting for a portion of this forecast.

In the meantime, Moneyfarm, a robo-advisory from Italy announced its entry to the UK. We now have the big UK banks developing their own robo-advisory units along-with Money on Toast, Strawberry Invest, SCM Direct and Wealth Horizon.

After three years in operation and garnering investments worth nearly seventy million dollars with little less than half coming from Schroders last June (Source: CrunchBase), search for a new CEO is all that was left for Nutmeg investors, advisers and those associated. Nick Hungerford has been the friendly face hopping across television channels as the CEO and Co-Founder of the business talking about how robo-advice will transform the face of UK investment channels. So why the sudden (or maybe not so sudden) need for a new CEO?

Companies House filings for Nutmeg Savings and Investment Limited shows a cumulative loss of GBP 11 million pounds since 2012. 2014 was circa five million pounds, preceding year was three and a half million and about half of that in 2013. Losses are a part of the startup ecosystem and could be explained as investments to develop and gain a strong footing.

Revenues in 2013 were close to a hundred thousand pounds and about six hundred thousand pounds in 2014. In September 2014 the target for Nutmeg was to have 100k users by Q2 2015. At that point, Investment Week reported Nutmeg had 35,000 users but not all had money invested. A simple analysis based on a few facts gives an indication of what was going on in 2013 and 2014. The fees for 2014 are under this link whereby a comparison is also given with the new fees.

nutmeg fin

Source: Revenue from Companies House Fees under this link and AUM Growth from Investment Week report

In two full years 2014 and 2013, Nutmeg’s user base number is in the range above, if we assume the target customer is likely retail and trying this new phenomenon of robo-advice for the first time. Keeping in mind that the consumer is likely experimenting, it should be no surprise to see smaller account sizes. How the numbers look like for 2015 filing remains to be seen. 2015 losses are likely to be at similar levels, if not more. The revenue reported will be interesting as it will indicate number of new customers. Given the headline that Nutmeg was aiming for a 100k users by Q2 2015 and now the news that they are looking for a new CEO – reasonable to assume that customer acquisition process has slowed down significantly?

What happens next? New Nutmeg CEO will have two key tasks cut-out: Customer acquisition and keeping competition at bay. The limited evidence shows there is a degree of reluctance from the prospective customer which means competition in shape of new market entrants is not necessarily a bad thing. Moneyfarm launch in UK after its success in Italy, will certainly learn from Nutmeg and they may find it beneficial to be a follower in this case.

Nick Hungerford’s likely departure as CEO indicates where the investors stand. He may still be the leading voice at Nutmeg to drive the vision unless there is strong desire within the investors to call for a complete change whilst there is still a chance to grow as the digital robo’s of the banks and other providers find their feet in the frenzy. Where will Nutmeg go from here is a poignant question not just for investors but also for all the upcoming Digital Banks. Barbed wires are here and the lightning fast highways are in sight, who will get there first only time will tell.

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