The simple valuation of wealth was almost halved by the largest shareholder, the power-controlled IGM

Wealthsimple Trade app icon appears on a smartphone on December 15, 2020.Jesse Johnston/The Canadian Press

The largest shareholder in one of Canada’s most prominent startups, Wealthsimple Technologies Inc. , lowered its holding valuation for the second consecutive quarter, as technology companies continue to face mounting pressure.

IGM Financial Inc. revealed. POW-T, IGM-T, a subsidiary of Power Corp of Canada, said in its second-quarter financial statements released late Thursday that it lowered the valuation of its 24 percent stake in Wealthsimple to $492 million. As of June 30, it is down 47 percent from its book value of $925 million on March 31. IGM now holds its stake in Wealthsimple at 42.6 percent of its $1.153 billion valuation as of December 31.

“This change in fair value is consistent with the continued decline in stock markets and public market peer valuations, and Wealthsimple is focusing on its core business lines and reviewing revenue expectations,” IGM stated. Power will reveal the impact of the devaluation on its books when it announces its earnings on Friday.

Wealthsimple is an online financial services company that has seen a boom in new retail clients throughout the pandemic with its no-fee trading platform. It has been one of the biggest beneficiaries in Canada of higher valuations and investor interest in technology companies during the pandemic, as it doubled assets under management in each of the past two years, reaching $18.8 billion on December 31, with 1.6 million customers.

In May 2021, Wealthsimple became one of Canada’s most valuable private tech companies when it raised $750 million at a $5 billion valuation. It was the second time in seven months that Wealthsimple raised a nine-figure sum from private investors, as interest in its US counterpart Robinhood Markets, Inc. Millennials flocked to the trading platforms to buy meme and cryptocurrency shares.

Both had bad news this year. Robinhood said this week that it will cut staff by 23 percent and revealed in its second quarter report that it has seen a decrease in the number of monthly active users and assets in custody. Robinhood previously cut 9 percent of its employees in April.

Meanwhile, Wealthsimple laid off 13 percent of its workforce in June. At the time, customers were “experiencing a period of market uncertainty that they had never experienced before,” Wealthsimple CEO Mike Katchen said at the time. IGM’s comments on Thursday indicate that uncertainty is weighing on Wealthsimple’s outlook and performance.

A Wealthsimple spokeswoman said Mr Katchen was not available for comment.

Even with the latest drawdown, Wealthsimple has lost its value less than publicly traded Robinhood, whose shares have sold more than 80 percent from their 52-week high.

The $5 billion valuation awarded to Wealthsimple last year provided the strongest evidence yet of Power’s evolution from a well-established owner of traditional financial services firms to one of the biggest supporters of competitors in start-up digital banks targeting underserved millennials and small businesses.

However, high valuations of Power-backed companies, including Wealthsimple and Koho Financial Inc. , made the Power stakes so large on paper that they became a physical part of their holdings. Increasingly, Power’s fortunes were tied to more volatile and risky startups rather than core companies like IGM and Canada Life.

The arrival of rising interest rates due to high inflation, as well as the pandemic-era hangovers in rising digital company values, have led to a widespread decline in valuations of technology stocks.

Power-controlled entities including IGM have collectively invested in Wealthsimple more than eight fundraising funds. They sold part of their stakes last year but still collectively own 42.6 percent of Wealthsimple’s shares and 60.3 percent of the voting rights on March 31.

IGM is still ahead, on paper, on Wealthsimple: Its stake in the startup and other company investments have cost $235.8 million. It is now valued at $599 million.

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