kaChing, a new financial startup that’s looking to rethink the way people invest, has closed a $7.5 million funding round led by DAG Ventures. The company had previously raised $3 million from Silicon Valley notables including Marc Andreessen and Ben Horowitz (Andreessen Horowitz); Kevin Compton and Doug Mackenzie (KPCB); Dave Beirne and Bruce Dunlevie (Benchmark); Jeff Jordan (OpenTable) and Mike Volpi (Index Ventures).
At a high level, kaChing is looking to bring some transparency to the mutual fund industry. CEO Andy Rachleff explains that it’s nearly impossible to do much analysis on how a mutual fund is performing — they only disclose the positions they hold at the very end of the quarter. You don’t know what kind of trades they executed during the quarter, and they can sell off their bad holdings just before the end the quarter so that you’d never know they had them. kaChing turns this model on its head.
It invites top traders to publicly share all of their trades, revealing information that until now was only revealed to the likes of Ivy League institutions. Rachleff says the top traders benefit because they can accept many amateur investors as clients with very little extra work on their part. And everyone else benefits because they gain access to this data.
Here’s how it works: kaChing has gathered a dozen top investors, many of them professionals, which it has certified to be “Geniuses”. Anyone who comes to the site is free to look at the full trading history of these Geniuses, free of charge. If you like what you see, you can sign up for kaChing and create a brokerage account through its partner, Interactive Brokers (a well established and publically traded brokerage firm). Deposit some money (the minimum is $3,000) and you’re set. From then on, the site will automatically execute trades for you to exactly mirror the Genius you’ve signed up for.
Geniuses make money through fees that average around 1.25% annually (kaChing takes a 25% cut). You’re free to stop following a Genius at any time, and the site will automatically notify you if it it detects that a Genius is changing their investment strategy or has been underperforming.
To determine who warrants this Genius status, kaChing looks at their past performance, including records of trades of the last few years. The site currently includes some accomplished amateurs as Geniuses, but will skew heavily towards giving that status to professional traders in the next few months. Up until now the process has been manual (hence only a dozen Geniuses), but the company will soon automate it.
From what I heard from Rachleff and founder Daniel Carroll, it seems like kaChing has quite a bit of promise. But this is still an unproven system, and I would advise readers to be very cautious before they decide to revamp their entire investment strategy without testing the waters first.
Other startups in this space include Covestor. Unlike kaChing, which has a screening process, for better or for worse Covester allows you to follow ‘normal’ users.