Khosla, Founders Fund, and Eric Schmidt Put $10 Million Into BillGuard

The other day, I mentioned in passing that Khosla Ventures invested in BillGuard, a TC Disrupt finalist from last May. Here are more details. It turns out that Khosla led the round, a $10 million series B. Other investors include Founders Fund, Eric Schmidt’s Innovation Endeavors, Bessemer, IA Ventures, Saul Klein, and Joe Lonsdale. The startup raised a $3 million series A in February, 2011.

BillGuard is an anti-virus for bills. It looks at your credit card statement and flags questionable charges, anything from a double-charge to potential fraud. It keeps a database of these charges and lets users flag their own, which makes the database even smarter. In addition, BillGuard listens to all the complaints about bills on Twitter, forums, and elsewhere on the Web and pulls that information into its database as well.

Since its launch at Disrupt, BillGuard has saved its early users nearly half a million dollars and is finding at least one bad charge on 20 percent of the credit cards entered into its system. Originally, BillGuard was going to pursue a freemium model whereby the first card would be free but consumers would have to pay for additional cards.

Fred Wilson, who was one of the finalist judges and helped to popularize the term freemium, argued that was the wrong approach (watch below). BillGuard eventually listened and dropped its charges to consumers. The value of the service is in the data it is collecting, so introducing any friction in the collecting of that data is counterproductive. Instead of charging consumers, BillGuard plans on charging banks to license the service on behalf of their customers. Ultimately, banks will become the main distribution arm for BillGuard.

The second way BillGuard plans to make money is from merchants. It is testing out a certification service that gives merchants a BillGuard badge and score they can promote on their sites. “We are doing this with a people-powered movement of flagged data,” notes CEO Yaron Samid. Merchants also get an alert whenever a BillGuard user flags one of their bills. They can send an email to the consumer immediately and address the issue before it gets out of hand.

Once BillGuard collects enough data, it will be able to turn on pre-emptive analytics. It could become one of those databases that gets a lookup in realtime at the time of purchase to reduce fraudulent charges. BillGuard is a big data play in a big industry. But it also shows how techniques from the anti-spam and anti-virus worlds of Internet security can be applied to financial security.