kaChing: New Start-Up Recasts Mutual Fund Industry
In 2008, Daniel Carroll, now 27, founded kaChing, an online investing community where more than 400,000 members try to sharpen their investing skills by managing virtual portfolios. Rooted in an open source philosophy that seeks to "democratize access to the best investing talent," kaChing takes aim at the mutual fund industry, which it claims isn't sufficiently transparent:
"The mutual fund industry is a $10 trillion industry that has seen no innovation for 25 years. The Internet has had no impact," Andy Rachleff, kaChing's CEO, told the
New York Times.
Starting today, kaChing will allow users to invest real money on the site. Clients can choose any of the site's "Genius" investors to follow, and every time the investor makes a trade, the user's account mirrors it. The Geniuses -- currently there are about a dozen-- are site veterans who have earned a high "Investing IQ." To determine Investing IQ scores, kaChing imitates the methodologies used by Ivy League endowments, which it notes outperform the S&P 500, by using a formula that measures risk-adjusted returns, the caliber of the rationale investors use to back up their approach, and whether they are consistent with their strategies. Every money investor's portfolio on kaChing is public, and users can choose to receive a notification every time favorite money managers make a trade or post a research update.
Now funded by big-name investors including Netscape's Marc Andreessen and OpenTable's Jeffrey Jordan, kaChing requires a minimum investment of $3000 to mirror any one investor. The site makes money by charging a management fee of 0.25% to 3.00%, depending on the money manager, who gets three quarters of the fee. Users are subject to an additional trading commission of two cents per share.
Even during a recession, kaChing's executives and investors think they can capitalize on the free flow of investing knowledge, and they have high expectations for their service. "Hopefully," Carroll told GigaOM, in the next couple of years "you'll see our ticker on the New York Stock Exchange."