14 DAY TRIAL // The Internet has affected a lot of services and businesses but for the most part financial services have remained unchanged. Sure, many have expanded to the web and make very nice sums of money from it but their business model is the same it has been for decades in some cases. One sector that has seen almost no impact from the Internet is the mutual fund industry, an $11.5 trillion yearly business in the US, but that may be about to change as startup KaChing is launching a new feature that will allow users to put real money behind their investments.
KaChing started out a couple of years ago as a Facebook app accompanied by a website that offered users 10 million virtual dollars to invest as they saw fit. The users could track their investments and get performance ratings and the stats could be followed by other users as well. The service now boasts some 400,000 registered users and 150,000 monthly active users. KaChing's founder Daniel Carroll has already secured $3 million in funding from some Silicon Valley big investors like Benchmark Capital, Netscape cofounder turned venture capital investor Marc Andreessen and others.
The site has now moved to the next step in its evolution, allowing users to invest real money but also to follow certain “genius” investors that have a record of profitable and smart investments. The minimum entry sum is $3,000, far lower than the usual for this kind of services, and there is no exit fee. Users can choose to mirror the moves of one of the genius investors automatically – there are only 10 right now out of about 8,000 users who share their investments publicly – and they can stop doing so at any point. Each user gets a rating based on their performance but also their strategy and those with a score of over 140 can qualify as a genius.
The idea is that the openness, transparency and ease of use will make more people willing to invest and will be a welcomed change to the very opaque traditional institutions. Geniuses charge a management fee of 0.25 percent to 3 percent and KaChing keeps 25 percent of it but they will be required to sign regulatory documents to keep them from engaging in illegal activities. There are other companies doing similar things but KaChing has some very solid and optimistic investors behind and if the geniuses prove reliable it could become quite a success.