Lost 401(k)s? Capitalize Aims to Simplify Consolidation

Leaving a job often means leaving a 401(k) plan behind. Many individuals, changing employers several times throughout their careers, may accumulate multiple 401(k) accounts across different companies.

The Problem of Forgotten Accounts

Consolidating these accounts can be a complex undertaking, leading to potentially significant financial losses over time. This is where Capitalize steps in.

Capitalize, a New York-based startup, offers a platform designed to locate forgotten 401(k) accounts and facilitate the consolidation of retirement plans – all at no cost to the user.

Recent Funding and Backers

The company recently secured $12.5 million in a Series A funding round. Canapi Ventures spearheaded the investment, with contributions from Bling Capital, Greycroft, RRE Ventures, and Walkabout Ventures.

The Founder's Insight

Gaurav Sharma, the Australian-born co-founder, previously worked in traditional finance. He observed systemic issues within the 401(k) market, particularly the link between retirement accounts and employment.

Sharma highlights that approximately one-third of individuals who switch jobs cash out their 401(k) plans, incurring associated penalties. Furthermore, a substantial number simply leave the funds untouched due to the complexities of transferring them.

Capitalize's Launch and Growth

Sharma and CTO Chris Phillips established Capitalize in late 2019, subsequently raising a $2 million seed round in March of the previous year. Since its official launch last September, the platform has managed nearly $10 million in rollovers.

The company experienced a surge in users during the summer months of last year, coinciding with widespread layoffs due to the pandemic.

How Capitalize Differs from Financial Advisors

Capitalize’s approach differs from traditional financial advisors. Advisors typically handle consolidations manually, while Capitalize provides an automated online platform.

Access to services is also a key differentiator. Typically, financial advisors require clients to have substantial assets – often hundreds of thousands of dollars – before offering assistance.

Accessibility for All

Sharma emphasizes that Capitalize is accessible to everyone, regardless of their asset level. “Whether you have $500 or $500,000 in assets, we’ll help you,” he states.

The Free Service Model

Capitalize’s services are provided free of charge to consumers. The platform assists users in locating and consolidating retirement accounts, and can also facilitate the opening of new IRAs.

The company partners with leading fintech companies and established financial institutions, earning compensation through referral fees – a model similar to that of NerdWallet, Policygenius, and Credit Karma.

Employer Services

Capitalize also offers a complimentary offboarding service for employers, streamlining the rollover process for departing employees. This benefits employers by reducing administrative costs and mitigating fiduciary risk.

Canapi Ventures' Perspective

Jeffrey Reitman, a partner at Canapi Ventures, highlighted the firm’s attraction to Capitalize’s team and platform. He described Sharma as an exceptional early-stage CEO with strong recruiting and decision-making skills.

A personal trial of the platform by a Canapi VP and family member yielded overwhelmingly positive results, demonstrating its ease of use and effectiveness.

Synergies with Banking Partners

Reitman also noted that approximately 80% of Canapi’s bank LP base already offer IRA and individual retirement account products. He believes there is significant potential for synergy between Capitalize’s efforts to reduce friction and the banks’ ongoing digitization initiatives.

Future Plans

Capitalize intends to utilize the newly acquired funding to enhance and refine its product, and to continue investing in technological advancements.

Continued investment in technology will be crucial for maintaining a seamless user experience and expanding the platform’s capabilities.