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