Venture Capitalists Jump On the ETF Bandwagon

The wave of exchange-traded fund venture cap financing shows no signs of slowing. Just months after WisdomTree Investments (WSDT) landed a whopping $56 million dollars in financing, two ETF start-ups landed significant VC deals last week – in one case, the same week that the group launched its first ETF.

The newcomer to the space is XShares, an ETF management and marketing start-up that recently launched its first ETFs, the "vertical investing ETFs" known as HealthShares. The group, which plans to launch more than 45 ETFs this year tied to both partnered and proprietary indexes, received a $10 million commitment form Grail Partners, a VC firm focused on the asset management space.

Grail Partners made no bones about the reasons behind its investment – ETFs are hot hot hot.

“We see ETFs as a truly revolutionary financial technology,” said Bill Henson, Partner of Grail Partners, “and look forward to participating in ETF growth as XShares helps make investing both more interesting and rewarding.”

Meanwhile, ETF Securities--the group behind the single commodity ETFs in Europe-- won a $10 million investment from FT Ventures. FT Ventures is well-established in the ETF space as one of the early supporters of PowerShares, giving it “golden touch” status in the ETF VC community.

The investment is an interesting validation for ETF Securities, which was spun out of the group at the World Gold Council that helped create the first gold bullion ETFs. Today, ETF Securities offers 29 exchange-traded commodity funds trading on multiple markets in Europe and elsewhere. Collectively, the funds have nearly $300 million in assets. FT Ventures is the first VC partner in the ETF Securities – until now, it’s pulled itself up by its bootstraps.

For those of us trapped in the day-to-day excitement of the ETF industry, the rash of VC financing reminds us of something important: the world is just starting to catch on. VC investors are--by definition--on the cutting edge, and they’re just starting to pay attention; Main Street is still way around the corner. It’s enough to make anyone excited about the future of ETFs.