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Why Did Drake Just Invest in This $5 Billion Canadian Tech Company?

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A Canadian fintech startup has plenty of star power. The valuation of Toronto-based Wealthsimple soared to $5 billion after raising $750 million in investments from venture capital investment firms and celebrities on May 3, 2021. Among the star-studded investors were rapper Drake, Green Lantern star Ryan Reynolds, and Back to the Future lead actor Michael J. Fox.

Wealthsimple is the firm behind some of the leading digital financial products in Canada. Furthermore, it was chiefly responsible for revolutionizing financial interactions among Canadians. The online financial products it brought to the market are smart and simple.

Biggest growth period

The new investment couldn’t have come at a better time. Wealthsimple is enjoying its biggest growth period to date in seven years of corporate existence. Canadians interest in stock trading suddenly increased during the pandemic, as evidenced by the rapid growth of Wealthsimple Trade in the past 14 months.

Apart from the trading platform, there’s mobile app Wealthsimple Crypto for users who wish to buy, sell and hold cryptocurrency assets securely. Wealthsimple Cash, a peer-to-peer money transfers app, was introduced in early 2021.

Massive transformation

With the new capital, Wealthsimple can expand its market position, build out a product suite, and grow its team. Currently, it offers automated investing, saving and spending, and tax filing. According to Mike Katchen, co-founder and CEO of Wealthsimple, the financial services industry is in the midst of a massive transformation.

Katchen envisions Wealthsimple to be at the leading edge of that transformation in Canada. He adds that the latest financial round should fuel Wealthsimple’s growth and allow it to reach millions more. Soon, everyone will have access to the simplest, most powerful financial products and services, he said.

For growth-stage venture capital firm Meritech, General Partner Max Motschwiller said, “We invest in companies with the potential to revolutionize industries and become enduring market leaders.” On October 2020, Wealthsimple raised $114 million at a $1.5 billion post-money valuation.

Largest shareholder

Regular investors can’t invest yet in Wealthsimple because it’s not publicly listed. However, they can consider investing in Power Corporation of Canada (TSX:POW) or PCC. The $24.94 billion diversified international management company and its group is the largest shareholder (62%) on record of Wealthsimple. The PCC group includes IGM Financial and Great-West Lifeco.

Power Corp. trades at $36.84 per share and pays a juicy 4.86% dividend. The stock’s trailing one-year price return is 75.68%. Over the last 46 years, POW’s total return is 88,098.43% (15.87% compound annual growth rate). Current investors are winning by 27.76% year to date.

Like Wealthsimple, Power Corporation provides various financial services. It offers annuities, insurance, retirement, reinsurance, and asset & wealth management through its operating companies. Its core investment in Power Financial is the anchor in POW’s consistent earnings.

Power Corporation attracts income investors because it’s a dividend aristocrat with an earnings growth of 3%+ CAGR in the last decade. More growth is on the horizon as the company continues to invest and develop investment platforms. Its leading franchises would also pursue organic and inorganic strategies to assist in POW’s long-term growth.

New kid on the block

Wealthsimple is the new kid on the block. With solid backing from the Power Corporation of Canada, it has the potential to have a wide MOAT in the financial services sector.

Speaking of a tech startup whose largest shareholder is a TSX Dividend Aristocrat

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

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