Money 2.0: Aspirin or Vitamins? (Charles Hudson)
Cake March 13th, 2008
I had been thinking a lot about personal finance this past few weeks and then I saw a TechCrunch post on how Mint raised more money and has been growing nicely. So I posted a tweet over the weekend with the following comment:
i’m not sure people are ready to hand over financial creds to web 2.0 startups. that being said, plenty of cool work being done in money 2.0
When I first started working in venture capital after college, one of the first anecdotes I heard was the “vitamins vs. aspirin” theory of investing. In short, the basic idea is a notion of relative need - people with headaches will seek out aspirin while we all know we ought to take our vitamins and often don’t. The theory holds that the best businesses (traditionally) are more like aspirin (solving an acute need) than vitamins (good for you but not critical).
Unlike esoteric and philosophical arguments about data portability, privacy, and API integration, people have a strong and material interest in making sure that their money is safe and secure - it’s one of the few areas of web 2.0 where what’s at stake is real, concrete, and quantifiable.
I’m very interested in all of the cool start-ups I’ve seen in the personal finance space which I unimaginatively lump together as Money 2.0. Good examples include Mint, Cake Financial, Wesabe, BillShrink, and Covestor. I try to avoid writing about products I haven’t actually used that much but I’m going to do it in this case.
Given that Microsoft Money and Quicken are both getting a bit long in the tooth, it seems like now is a good time to be launching innovative personal finance products. Some thoughts about the whole Money 2.0 space below.
To succeed, I have to believe that these tools are going after people who are non-users of the desktop alternatives. Microsoft Money and Quicken both have large installed user bases and relatively flat growth in net new users. Chances are if you’re interested in a desktop personal finance solution, you’ve already got one. Given the marketing budgets and installed base those products have, I can only imagine that these money 2.0 startups are going after folks who aren’t using these desktop products. Whether or not they’ll succeed in converting these non-users to become active users of a web-based solution depends (I think) largely on the root cause of their non-use. Is it product complexity? Cost? Or is it simply that people know they should be more responsible about their money and just choose not to take action?
Are people ready to trust their financial information to new startups? I think this is going to be a really interesting situation to see play out. There are obviously early adopters in any market and people nowadays seem much more comfortable putting their personal information online in social networks and community sites. I have always thought that money is different than other types of personal information because the consequences associated with disclosure and misuse are so much higher. This will be a good test for how far the market has come in terms of people putting their financial information online.
One thing worth noting is that one of the historical advantages of desktop products is that the information on your computer feels “safe” as it’s under your control - as long as your computer is properly secured nobody can get to it (in theory, at least). Will people be as trusting in the cloud with services offered from new companies? I think there are more people willing to hand over their financial information to companies (start-up or not) who can help them better manage their money than either I or any other pundit today expect. I’m curious to see how large that audience is today, which is really what matters for all of the new entrants.
Is this going to be like Paypal or online bill payment? In terms of historical analogies, I wonder if this will play out more like Paypal or online bill payment. In the former case, Paypal was able to succeed in pioneering a brand new service that existing banks and financial institutions could have provided and in fact did try to provide. In the end, Paypal won for reasons that are too myriad to list here. However, online bill payment has been a different story. Based on data that I’ve seen, the vast majority of users who pay bills online pay them directly through their chosen bank or financial services provider. At this point, I’d be willing to say that it if there is a market for web-based personal finance solutions, start-ups are likely to win here. If any of these companies can build a large enough user base, I think they will be very difficult to knock off, even by a well-funded incumbent.
Right now to me, this market feels more like vitamins than aspirin, but that could change as people start saving money, getting their financial houses in order, and talking about the benefits of these products.
If you’re a user of any of the products mentioned in this post or have thoughts, feel free to leave them below.
Tags: Cake
A fund for the people, by the people (Canada Globe & Mail)
Cake, Marketocracy March 11th, 2008
The Marketocracy Masters 100 Fund is a mutual fund unlike almost any other. Its stock pickers are actuaries, geologists, computer programmers, psychiatrists, waiters and various other amateur investors.
A diverse lot to be sure, but the San Mateo, Calif.-based mutual fund is outperforming the market. Since inception on November, 2001, it has delivered a total return of 75 per cent as of the end of February, compared with a gain of 35 per cent in the Standard & Poor’s 500 index in the same period.
Although it isn’t available to Canadian investors and its assets under management are still small at $35-million (
Mr. Kam buys and sells stocks guided by the trading activity and opinions of the top investors on Marketocracy.com. In effect, he is running an actively managed fund that recruits its research talent from Main Street USA.
The best investors are identified through a quantitative process. Mr. Kam and his team have developed computer programs that extensively analyze the performance of the portfolios on Marketocracy.com over different time periods. From this screening process, a list of the top 100 portfolios (m100) is created each month.
Portfolio managers in the m100 group are not one-hit wonders. “We don’t look at short-term performance as an adequate comparison,” Mr. Kam says. “We require at least a three-year track record of outstanding gains.”
The result is a diverse collection of stock-picking talent. Some are “generalists” who outperform with portfolios spread across many sectors, while others are “specialists” who outperform with portfolios concentrated in one or a few sectors, Mr. Kam says.
In contrast to many other actively managed funds, his roster of analysts has talent not just in one sector or investment style but in all departments - and can therefore be called upon to help steer the fund through different market environments.
Each day, the computer produces a report on trading activity within the m100 group. Mr. Kam pays close attention to new and large positions. If they are going against the Wall Street consensus, that is a strong “buy” signal. But before putting in the order, Mr. Kam sends an e-mail to Marketocracy.com members who have the stock in their portfolios, asking for their views.
Once a decision is made to buy a stock, the next step is to decide what weight to give it. The breadth and intensity of viewpoints received from e-mails and one-on-one interviews is one factor. Another is the skill set of the top investors owning the stock, as measured by Mr. Kam’s software ranking system.
For example, do their picks tend to be right more often than other investors (i.e. high winning ratio)? When they are right, does the average gain on their stock far surpass the average loss on their mistakes (i.e. good trading skill)? And do they have a consistent record of exceeding the benchmarks for their sector or investment style?
What to buy and by how much is also affected by how well a stock fits in with the existing portfolio. Mr. Kam doesn’t want just a collection of best ideas but a set of best-idea stocks that are spread over more than one sector and are driven by different factors.
“A portfolio should be built so that there is no one factor than can bring down all the positions at once,” he explains. Some of his best investors may be moving toward an all-energy portfolios but the fund won’t follow them all the way. To control risk, the fund’s energy exposure will be limited to 25 per cent.
Mr. Kam provides an example of how the stock selection process works. In 2005 he noticed two of the top 10 investors on Marketocracy.com had purchased large positions in Elan Corp., an Irish drug company. Its shares had just plunged by more than 90 per cent after the company’s multiple sclerosis (MS) drug, Tysabri, was pulled from the market because of serious side effects.
He asked his two top investors what they liked about the shares and e-mailed the same question to the 1,500 or so other members who had bought them. From the responses, he discovered that medical reports had indicated the fault lay with the interaction with other drugs, not the drug itself.
Also, several Marketocracy.com members afflicted with MS sent back e-mails indicating they still wanted the drug treatment regardless of the side effects. That was enough to tip Mr. Kam into buying the shares for the fund. It’s now the biggest holding at over 6 per cent of assets, having more than trebled in value since purchase.
Once a portfolio manager at top-ranked Firsthand Technology Value Fund in the 1990s, Mr. Kam thinks the fund industry is flawed because professional managers are recruited right out of business school and lack firsthand experience in the industries they cover.
“We don’t depend on an analyst that has never worked in industry to become smarter than the market about that particular company and industry,” Mr. Kam says. “We have detailed trading data on hundreds or thousands of people that are consistently beating the market, great at trading that particular stock, or have firsthand experience with that industry or company.”
HOW IT WORKS
Although membership on Marketocracy.com is free and portfolios use play money, there are certain rules that need to be observed. Specifically, members must run their virtual portfolios according to the same regulatory framework under which
There is no buying on margin or short-selling. Stock positions cannot be larger than 25 per cent of total assets and half the portfolio must be made up of holdings five per cent or less of total assets. The overall effect is to keep a lid on silly, roll-the-dice investing.
In addition, there are several incentives for members to give it their best shot. If they make it into the exclusive m100 club, they will receive cash rewards based on the size of fund’s assets (and other perks). Many are motivated by the chance to build a reputation that could lead to second careers as investment advisers.
OTHER NETWORKS
Other social-networking websites for investors, notably Cakefinancial.com and Updown.com, are planning mutual funds that access the “wisdom of the crowd” on their sites. Cakefinancial.com is different in that real, not virtual, portfolios are tracked. Updown.com has hired
And other “mass collaboration” funds, such as StockJungle Community Intelligence Fund and IPS iFund, have come and gone. StockJungle failed because it invested on the basis of what was popular with its crowd - i.e. when most of the good news had already been discounted by the market. IPS Fund folded because decisions were taken by vote and the votes were distributed by the amount of money an investor had deposited. The flaw here is that stock-market talent is not necessarily linked to the size of one’s bank account.
Tags: Cake, Marketocracy
Cake Financial apparently passes The Smile Test
Cake March 1st, 2008
Can your name pass The SMILE & SCRATCH Test?
The secret to powerful, unforgettable and sticky brand names is simple, “A name should make you smile, instead of scratch your head.” We evaluate every name we create based on this no-brainer philosophy - and now you can too with the new Eat My Words SMILE and SCRATCH TestTM. Run your own product and company names through the test and see how they hold up. It’s not as easy as it sounds. Most names fail because they are spelling-challenged, hard to pronounce, and meaningless to customers who don’t know Latin (which is just about everyone except for Alexandra’s mother). So cancel your focus groups and use this criteria any time you’re trying to objectively evaluate a name. You’ll instantly be able to see if you have a winning name or if you should scratch it off your list.
SMILE – the qualities of a powerful name
Simple – easy to spell, say, and understand
Meaningful – instantly maps to a positive brand experience
Imagery – visually evocative - creates a picture in your mind
Legs – carries brand, rich wordplay, brand-extensions
Emotional – empowers, entertains, engages, enlightens
SCRATCH - scratch if it has any of these deal-breakers
Spelling-challenged
Copycat – similar to competitor’s names
Random – disconnected from the brand
Annoying – hidden meaning, forced
Tame – flat, uninspired, non-emotional, boring
Curse of Knowledge – only insiders get it
Hard-to-pronounce
All of our names pass the test: Spoon Me, Neato, Monkey Dunks, Cake Financial, DayTipper, Dizzywood, Dash, and countless others. Do yours?
– via The Kitchen Sink
Tags: Cake
Share Your Investment Portfolios on Facebook (Mashable)
Cake February 25th, 2008
Cake Financial has just launched a Facebook application. You can take your investment knowledge to your Facebook friends, share your investment portfolio and gain from the collective knowledge of all your b-school college friends. The important information, like your net worth, isn’t revealed, so it’s rather understood that this application works quite similarly to the Cake Financial stand-alone network.
This move makes Cake Financial one of the first to take such an expanded approach to its investment and financial networking services, following along the same path as most other collaborative networks out there. With the benefit of having the wisdom of the crowds, Cake Financial is aiming to be present wherever its users are, in a rather integrated manner. It’s somewhat similar (albeit in reverse order) to what LendinClub has done, in its enabling of users to look to their trusted network of friends and acquaintances for financial purposes. While LendingClub doesn’t deal in the sharing of personal portfolios, it’s easy to see the parallels.
Cake Financial is shifting its networking tools from that of anonymity within the larger confines of its stand-alone network to the existing social graph you already have on Facebook. Is that more beneficial than seeing the shared knowledge from those that have proven themselves on Cake Financial? That really depends on who your friends are. Surely the combined information of such data will be more helpful than harmful. Hopefully the newsfeed alerts for updates made to your Cake Financial account won’t get too annoying for your friends!
Tags: Cake
Cake Financial Now Lets You Track Your Friends’ Stock Portfolios on Facebook (TechCrunch)
Cake February 25th, 2008
TechCrunch writes: Of all the apps on Facebook, here is one that might actually make you money—depending on how smart your friends are. Cake Financial, a social finance site that lets you track and share the performance of your actual brokerage accounts, just launched its Facebook app
. The app lets you compare your real stock-picking prowess to that of other Facebook members who install it on their profile pages. These are not fantasy portfolios. They show your actual returns in percentage terms (no dollar amounts are revealed), and let you compare your returns with that of your friends across brokerage accounts. Every time you or a friend makes a trade, it shows up in your feed. Talk about timely information.Cake Financial launched at the TechCrunch40 conference last year. Since then, nearly 10,000 members have signed up who track portfolios collectively worth about $1 billion. CEO Steve Carpenter hopes that Facebook will help Cake Financial grow faster.
The potential power behind Cake—as with other social finance sites like Covester, SocialPicks, and Motley Fool CAPS—is the ability to follow the best stock pickers no matter who they are (amateur or pro). Carpenter has plans to create exchange-traded funds (ETFs) that mimic the portfolios of each of the top five percent members on Cake. It would be a personal ETF. He is still working through the details. But imagine if one of your friends on Facebook was in that elite group and you could automatically start trading alongside him. Would you do it?
Tags: Cake
A Survey of Social Investing Sites (VentureBeat)
Cake, Marketocracy, SocialPicks February 11th, 2008
We’ve seen social editing, social networking, social news, social bookmarking, and even social music take off. Now a social shock to the system is coming to a market usually dominated by insiders and experts: the finance industry.
Online trading brokerages have existed since E*Trade pioneered the market in the early ’90s, but now an onslaught of entrepreneurs, new media experts, and financial analysts are once again rebelling against the traditional investing model on Wall Street. They want to open the valves of information to those of us who aren’t experts.
It’s a potentially lucrative field, and a number of key players were strutting their stuff at the O’Reilly Money:Tech conference in New York City last week.
Inspired by that conference, this survey of the space compares the main players and outlines their user bases and business models. And while I won’t answer the question of whether you can and should trust your money to the ‘crowd wisdom’ model, I’ll try to answer questions that are quantifiable: who are these companies, how much money did they raise, and how do they plan to make money?
Covestor is a social investing community that links your online portfolio to a real brokerage account, analyzes the data, and lets users follow investors (who Covestor calls “fund managers”).
Covester caters to two types of users: investors and fund managers. Fund managers — who may be anything from professinal investors (who make up 20 percent of the site) to hobby investors — import data from their actual real-life portfolios (from any of 18 online stock brokerages) onto the site so that other users can watch their investments. Covestor performs analytics on each of the fund managers. Investors can then browse fund managers by type of investments that a manager makes and how risky those investments tend to be.
Covestor’s analytics creates tables comparing 150 different dimensions that investors can search. Investors can also track their performance and activity against other users, fund managers, and indices and can recieve email updates when a fund manager they follow makes a change to his or her portfolio.
CEO Richard Tahta says Covestor plans to bring a level of trust and real-world verification to social investing, like what you find on social network Facebook. He says he plans to extend the site to let users follow fund manager activity in real time and allow buy/sell orders to be sent directly to a user’s brokerage account. In that sense, Tahta’s goal is to compete with portfolio management services from UBS or Goldman Sachs. (Note: Covestor’s operations chief previously ran the data and portfolio analysis systems at Goldman Sachs.)
To take care of users’ research needs, Covestor has partnered with financial news sites Seeking Alpha and Investopedia, as well as a major financial content provider that Tahta declined to name. Although its current audience is mainly U.S.-based, Covestor has users in more than 30 countries. It only analyzes trades in long, short and equity markets, and doesn’t allow trades on options or derivatives.
Right now, Covestor doesn’t have any revenue, but it plans to let fund managers earn revenue by charging minimal fees to the investors who follow them, just as real fund and hedge fund managers do, while the company will keep a portion for itself.
The company has received two rounds of funding from undisclosed investors.
Location: London, UK and New York City
Number of employees: Undisclosed
Funding: Undisclosed funding from Independent News and Media PLC
Business Model: Company takes percentage of fees that fund managers earn from other users
Profitable: No
Money invested through platform: $1 Billion, according to Tahta.
Steve Carpenter, chief executive of Cake Financial (who we covered at launch in September), wants his company to become the largest social network for investing. The idea is to let users who own the same stock talk about their common investments. In fact, the company has a stealth application in development that may hit a major social network soon.
Cake not only lets users import data from multiple brokerage accounts, but also gives users access to historical portfolio data and lets them view historical returns on investment from that data — something most brokerage accounts won’t do, Carpenter says. Cake then ranks users and lets other users follow their future investments. Cake’s top users feature an annual historical return of 28 percent, dating back to 2002.
To make money, Cake plans to sell the habits of its top users to institutional investors, who, Carpenter says, have already approached him. All the information on the specific value of portfolios and the number of shares is confidential because Cake’s metrics are based on percentages of stock portfolios, not the number of shares owned. Cake also shows the impact a certain stock has had on the overall value of the portfolio. Carpenter adamantly maintains that each users’ data is his or her own, not the bank’s or brokerage firm’s.
Carpenter compared Cake to social music site Last.Fm, specifically mirroring its clean user interface, good customer experience, and ranking individual data to provide personal recommendations, something the company will begin in 2008. It also provides activity alerts to alert users of changes in the portfolios of friends, family, and other investors they’re following.
In one week, the company’s going a whole lot more social — we’ll let you in on the development when it happens.
Location: San Francisco
Number of employees: 20
Funding: Undisclosed amount from investors who include Alsop Louie Partners, Ron Conway/Baseline Ventures and others
Business Model: Sell data on top users to institutional investors.
Profitable: N/A
Money invested through platform: Undisclosed
Zecco stands for zero commission costs. In accordance with that name, Zecco lets investors with $2,500 in their account make ten free stock trades per month.
CEO Jeroen Veth, a former Merill Lynch Vice President, says the industry is headed towards a more open flow of information, something we saw discussed often at the Money:Tech conference. The company is focused on customer service after numerous complaints in its first launch, and has nabbed an E*Trade employee, Michael Feser, the guy who helped run E*Trade’s customer service turn-around.
Zecco will be profitable later in 2008, says Veth, and is already generating revenue from multiple sources — interest earned on account balances of its members, charges from special services, advertising, and cross-selling products with other financial-minded institutions. Zecco has talked to some European companies about expanding internationally by franchising its model, but Veth wouldn’t offer any specifics.
Veth cites both Cake Financial and Covestor as companies hovering in the same market space, but he argues that there’s room for different players, just as E*Trade coexisted (and still does) with TD Ameritrade. If anything, Veth says, the competition proves that the shared vision of an open, social-influenced investing community is gaining traction.
Zecco launched late 2006. In November last year, we wrote about the company’s extraordinary growth plans.
Location: Burlingame, Calif. and previously Ontario, Canada
Number of employees: 85
Funding: $35 million, including Skype investor Martin Lund
Business Model: Advertising, Cross-selling products, interest on account balances, franchising Zecco model
Profitable: In 2008
Money invested through platform: N/A
Wikinvest, a site we covered in November, brings the seemingly antiquated wiki collaboration approach to the arena of investing. The San Fransisco company lets investors collaborate by editing pages about stocks and other opportunities. Already the site claims 100,000 contributors to its wiki.
Wikinvest lets you start with concepts, which the company explains can be things like themes, ideas, trends, products, and industries. Not only can investors do a typical search by company name, but they can also start searching from concepts like the rising price of oil, crisis in subprime lending, or the rise of ecommerce, the site explains.
One component unique to Wikiinvest is a social stock chart, or WikiChart, which lets users add annotations to try to explain WHY a stock price is fluctuating.
You can even play a popular game that’s reminscent of time spent on Wikipedia: something the company calls “six degrees of Exxon Mobil.” Here’s what the company says: “Sometimes in the office, we play Six Degrees of Exxon Mobil — a little game we made up in which we try to guess the shortest way to link any company to Exxon Mobil. The other day we were talking about Coca-Cola: From Coca Cola (KO), click through to Corn Prices, which is connected to Ethanol, which is connected to Oil Prices, which is connected to Exxon Mobil (XOM).”
Location: San Francisco
Number of employees: N/A
Funding: $2.5 million from DCM
Business Model: N/A
Profitable: N/A
Money invested through platform: N/A
Marketocracy is yet another social investing site that lets investors import virtual mirrors of their real stock trading portfolio. It gives individual managers a report card and lets users invest money along with the best performers.
A year ago, Marketocracy opened four virtual funds made up of the stock picks by the top four of Marketocracy’s 80,000 participating managers. Marketocracy tracked their records over the past five years, giving them a virtual $1 million to invest and factoring in transaction fees and other costs. Their long-term goal was always a m100 fund that demonstrates the site’s best investors.
Today, the site claims more than 55,000 users managing 65,000 model portfolios, which Marketocracy has been tracking and analyzing for three years, incorporating long and short-term performance. The company supposedly accounts for the market, sector, and style of trade, of its investors to help offset the “right place, right time” factor that many investors criticize social investing sites for.
Marketocracy was cofounded by Chief Executive Ken Kam and President Mark Taguchi, who managed a fund called the Firsthand Technology Value Fund, ranked No. 1 fund by Lipper for five years.
Location: San Mateo, Calif.
Number of employees: N/A
Funding: $16 million from US Venture Partners, Formative Investors, and others
Business Model: N/A
Profitable: N/A
Money invested through platform: N/A
The Motley Fool CAPS is a fantasy stock investing game that lets users forecast a stock’s performance vs. the S&P 500. Based on that performance, a user gets a percentile ranking. CAPS then uses the data to sell stock recommendations.
CAPS has a digg-like super user feature, where users with higher ratings have more sway on a stock recommendation. It also gives users the ability to vote per stock on bull vs. bear predictions, provides discussion boards, and lists general statistics on the stock in question.
Stock ratings are based primarily on three factors: predictions that a pick will outperform or underperform, time frames for those picks, and ratings of users who made those picks. CAPS claims that these ratings are all merit-based, held accountable by the thousands of users.
The site even tracks the famed Jim Cramer, from CNBC’s TheStreet.com, who is currently ranked 8,050 out of 44,685 using the picks he recommends on his TV show.
Location: Alexandria, Virg.
Number of employees: part of Motley Fool, so hard to count
Funding: Division of Motley Fool
Business Model: Sells stock recommendations and advertisements
Profitable: N/A
Money invested through platform: Only fantasy funds
(The logo’s a bit reminiscent of Covestor’s, isn’t it?)
SocialPicks is another fantasy stock-market investment game gone social. In fantasy sports fashion, users pick the companies they’re pulling for — or at least expect to perform well on the market, and get a score based on how well they return money from their “picks.” These picks are ranked against other users, while the web site also features a financial blog submission tool that extracts opinions on stocks from various users’ blogs.
Like some of the other sites, SocialPicks wants to generate revenue based on the value of the financial data of its users.
Location: Mountain View, Calif.
Number of employees: N/A
Funding: $500k from Bay Partners
Business Model: Sell data
Profitable: N/A
Money invested through platform: Fantasy funds only
Stockpickr is an investing site founded by two hedge-fund managers frustrated with the standard investment approach.
James Altucher and Dan Kelly created a site where users could not only follow “super investor” portfolios like those of a George Soros or Warren Buffet, but also pick one or two positions from each of those. Joining with TheStreet.com (which first owned 49.9 percent of the site and then later bought it out completely), Stockpickr was built to function like financial news with the news stripped out, according to Altucher.
Stockpickr, which claims five million unique visitors, also features portfolios from its community of users, which other users may rate. The big draw to the site, however, seems to be its “answers” sections, which functions a bit like Yahoo Answers but for stocks. It also displays most viewed portfolios, top rated portfolios, and a TV section, which shows video from not only TheStreet.com, but also user-generated video.
Location: Wall Street
Number of employees: Part of TheStreet.com, so hard to count
Funding: Undisclosed acquisition by theStreet.com
Business Model: Advertising
Profitable: N/A
Money invested through platform: None
San Francisco-based Vestopia lets users follow professional money managers on its social investing site and receive email or SMS updates when the managers a user is following makes a trade.
VentureBeat writer Anthony Ha covered the company a few days ago and explained: “Vestopia offers information about fewer investors, but says its information is more credible, because it tracks real individuals and can show you exactly how they’ve done over time. You can judge for yourself by reading their profiles here. The three most successful investors, according to Vestopia’s statistics, are Dan Knight of DK Investments, independent trader Larry Gendler and Mike Goodson of JP Morgan.
“Vestopia offers other ways to interact with the ‘investment managers’, such as blogs, videos and live chats. But since there’s no shortage of investment advice on the Web, the portfolio tracking is the heart of Vestopia’s approach.
“In addition to launching its service, Vestopia also recently announced that Steve Markowitz, co-founder of shopping rewards site MyPoints.com, is its new CEO. The company says it raised “millions of dollars” — it won’t disclose exactly how much — in January from Lightspeed Venture Partners, Gemini Israel Funds and Ofer Hi-Tech.”
Location: San Fransisco
Number of employees: N/A
Funding: “Millions of dollars” from Lightspeed Venture Partners, Gemini Israel Funds, and Ofer Hi-Tech
Business Model: Plans to begin charging for “premium services”
Profitable: N/A
Money invested through platform: N/A
Investing social network The UpDown was created by a bunch of Harvard Business School alums who wanted to build a site for users to out-trade (and get paid when they do) the major stock indices using $1 million in fantasy money — and use that data to run a multi-billion dollar fund consistently outperforming the market. Users also improve investment skills through collaboration, using the site’s social networking features.
The company, which launched in September 2007, is already claiming more than 17,000 registered users.
VentureBeat’s Leonid Kozhukh explained when he covered the company back in December: “The company’s ultimate goal, says co-founder Michael Reich, is to build up a group of users who consistently out-perform the major indices and then create an investment vehicle that mimics the behavior of those users. The challenge is to pinpoint a subset of users whose investment behavior is both trustworthy and scalable to large investments. (A corporation’s liquidity and market valuation may be problematic at higher investment amounts.) Reich is optimistic that by cultivating the right mix of online members, he’ll have the data he needs to run a multi-billion dollar fund capable of outdoing the markets.”
Location: Cambridge, Mass.
Number of employees: 3
Funding: $1.2 million from Swiss Investor Joachim Schoss
Business Model: Advertising
Profitable: N/A
Money invested through platform: Roughly $18 million in fantasy funds.
BullPoo, another social investment platform with a much more interesting name (and a video-game twist), lets users discuss and debate financial issues as well as trade a virtual portfolio, make forecasts, and post financial blogs. Bullpoo analyzes and posts statistics on user forecasts and portfolio management. BullPoo even has fictional brokerages that users can pick from based on investment style and preference.
The site also has the typical community features: top rankings, feedback and profile creation, but most viewable features are closed to registered users. For the forecasting feature, users set target price, duration, and precision of the forecast, while Bullpoo tracks the success of those forecasts.
Users can invest their $1 million play money into the American stock exchanges, but the site also has a role playing game-like scoring system, that lets users earn experience points for their trades and forecasts to advance to the next level. It may not compare to Final Fantasy or World of Warcraft in terms of a following, but Bullpoo is trying to make investing more fun for its users.
Location: Ontario, Canada
Number of employees: N/A
Funding: N/A
Business Model: Advertising
Profitable: N/A
Money invested through platform: $1 million in fantasy funds
Tags: Cake, Marketocracy, SocialPicks
Video Interview, Steve Carpenter, CEO of Cake Financial (Fortune)
Cake February 7th, 2008
Fortune’s Jesse Hempel interviews Cake CEO Steve Carpenter. See the video @ Fortune.com.
Tags: Cake
Five investment guidelines for 2008 (MarketWatch.com)
Cake December 26th, 2007
Deciding where and when to spend, and how to invest, in the coming year doesn’t have to be as daunting as the jitters of the past 12 months seem to warrant. Cake Financial, a new online investment community that lets users follow their own portfolios and real-time trades as well as track those of investment leaders and friends, offers this advice.
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Don’t trade so much. Trading too often is the No. 1 killer of investment performance, due to fees and capital gains that reduce profits. The best way to avoid both is to check yourself against other investors and key market indices before you buy or sell to be sure you’re making intelligent decisions.
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Don’t forget the past. Examining how your investments performed in the past can help you refine your strategies for the coming year. Review as much of the history of your investments as possible — it will provide context about how your portfolio has performed over time and lend insight into ways you might alter your investment habits to reap greater returns.
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Don’t talk to Chuck. Don’t rely on just one or two people for advice. Tap into multiple, proven parties, not just a single banker or broker, say, but a number of them.
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Do talk about money. If you know other people who have been successful investors, don’t be afraid to discuss money with them, in broad terms that will not reveal your specific investments. A good question to ask is, “What’s your asset allocation?” That is, what percentage of your total investments are in stocks, in bonds, in real estate and other broad sectors. Opening up about your investing and inquiring of others about their approach may lead you to information that can change your outlook for the long run.
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Challenge your adviser. If you’ve entrusted your financial health to an investment adviser, don’t hesitate to ask him or her to share his or her own investment record with you. You can verify it at www.cakefinancial.com, where it’s free to create an account that reflects one’s real portfolio and trades.
“The reason top-performers in the market share their ideas is that it’s not a zero-sum game for investors,” says Steve Carpenter, CEO of Cake Financial. “If you buy a stock and the whole world follows your choice, the market for that stock will go up and you’ll make more money.” 
Tags: Cake
Piece of Cake (Forbes.com)
Cake December 10th, 2007
A new Web site aims to identify the smartest individual investors so you can copy their moves.
The web is lousy with investment advice, if you believe anonymous touts and short-sellers. Bondmaster001 told his
Okay, Bondmaster001, put your money on the table. A new Web site called Cake Financial invites users to reveal their trades in exchange for seeing everyone else’s. Sign up for a membership at Cake and you grant it access to your brokerage account. Members are ranked every day by how well they perform based on the risks their portfolios assume. In two months the site has signed up 1,600 members and is tracking $450 million in assets.
Cake founder Steven Carpenter, a 35-year-old tech entrepreneur, wants to tweak the professionals who claim a lock on Wall Street smarts. “Lots of individuals beat the market,” he says. “Investment managers get paid even if they lose your money.”
A sample of 169 Cake members (those whose brokerage accounts allowed access to trading histories) posted annual returns averaging 10.9% over the past three years. That beats the S&P 500’s 6.7%, but the outperformance may not mean much, given that the Cake players tend to like risky stocks and this has been a bull market. But look at this: Cake’s top-quartile performers averaged gains of 28.2%. That may not be pure luck. There might be really smart investors in the group.
Cake is free, for now. The site expects to receive its registered representative license in a few months. This will allow it to execute trades on behalf of users who want to shadow the smart members. Carpenter also plans to charge for detailed peeks inside the best portfolios and start a mutual fund based on those portfolios.
Cake asks a lot in requesting your brokerage account password, but it is so confident of its security that it will refund any cash lost in a breach. Still, Steven Anderson, who invested in Cake with Silicon Valley angel Ronald Conway, says “Trust is the biggest challenge.”
Crowd tracking on Wall Street is drawing a crowd. Another site, Covestor, has signed up more than $100 million worth of portfolios and will pay top investors a fee to reveal their trades. Marketocracy Masters 100 is a $44 million mutual fund that buys and sells stocks based on trades by the best long-term performers from a pool of 20,000 investors. The fund charges a highish 1.95% expense ratio but has beaten the market all but one year since 2001. “Not all the best investors are on Wall Street,” says manager Ken W. Kam.
But failure befell MetaMarkets’ OpenFund, which started in 1999. It also disclosed every trade as it happened and solicited tips from folks on the Web. The fund climbed 44% in the first few months but fell 70% before closing in 2001. OpenFund had heavy emphasis on tech stocks. Nine of the top ten positions at Cake, too, are tech stocks.
Terrance Odean, a professor of finance at UC, Berkeley’s business school, is skeptical of those who chase winners. Says Odean, “They think that guy is a genius, when he’s just really lucky.”
Don’t quote us on this, but that’s the dirty secret of the whole mutual fund industry.
Upper Crust
The top-performing investors signed up with Cake Financial own these tech-focused stocks and funds.
- Apple Computer (AAPL)
- Vanguard 500 Index (VFINX)
- Yahoo (YHOO)
- Google (GOOG)
- Lululemon (LULU)
- Mikros Systems (MKRS)
- VMware (VMW)
- Intuitive Surgical (ISRG)
- Ishares FTSE/Xinhua China 25 Index (FXI)
- Oracle (ORCL)
Tags: Cake
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