December has been an action-packed month for kaChing, one of my favorite asset management startups and a solid member of the New Rules of Investing. The hot startup scored another round of funding, further lending support to their model’s success. The small tech firm essentially incubates fledgling asset managers through stock picking games, allowing users of all stripes and colors to manage virtual portfolios. From these virtual portfolios, investors with real money can mirror their own portfolios to track the moves of specific kaChing-ers — for a fee.
kaChing was all about democratizing mutual funds — providing transparency to a dated and frequently, black-box-like investment process. More so, it provided a business model for arm-chair stock pickers, investment newsletter publishers, and financial bloggers. Alongside competitor Covestor, kaChing enabled investment content to become immediately monetizable by allowing analyst-bloggers to receive payment for managing portfolios. Game changer and a winner idea — Seeking Alpha’s blogger minions finally had the prospect of making some real money, not just spare change AdSense money every month.
All that changed on December 9th with kaChing’s announcement by KC’s President and CEO, Andy Rachleff. A seemingly innocuous change (at least that’s how management spun it) knocked off all virtual portfolio managers from kaching.com proper and relegated their activities to kaChing’s Facebook app.
It doesn’t take an MBA, Harvard and Stanford degrees, and a Benchmark Capital founder to know that this would massively alienate the userbase — the same pool from which kaChing claimed to be drawing its future talent. Instead, like a baseball farm team, kaChing management plans to prospect for talent in the Facebook app and bring over aspiring managers to be mirrored — if they feel like they can handle the big leagues.
Moreover, this change sort of rings hollow when contrasted against kaChing’s purported mission:
kaChing’s mission is to democratize access to the best investing talent. With kaChing, for the first time, the everyday investor benefits from unprecedented transparency and access to the returns, advice, insights, and talent previously available only to the wealthy.
Responses from the kaChing’s not-yet-Geniuses (kaChing users who are enabled for portfolio mirroring) have been understandably upset.
Here are a few:
- Noah James Says: December 16th, 2009 at 11:00 am looks like kaching just got 7.5 million dollar funding from a major investors. their focus is now getting real money from us to make profits. no wonder kaching really doesn’t care about us, active individual investors. they’re in in for a big market.. MUTUAL FUND. sorry guys at kaching.. how dare you try to compete with mutual funds and individual traders at the same time. no one’s on your side. only those big investors who have no way of seeing these posts
- Disappointed Member Says:
December 13th, 2009 at 1:09 pm I too share the numerous negative comments as to the unannounced switch from a dedicated site to Facebook. To date I too have invested much of my time and energy to learn and follow kaching.com investors. With these recent changes my enthusiasm for kaching has greatly diminished. I am going to take time and review my options before taking any action.
To be fair, it makes sense that incoming users to the asset management side of the business (which currently has about $5 million tracking kaChing Geniuses) would be confused to see masses of sweaty traders trying their hands at beating the indices. It does make sense to make some type of delineation between the supply and demand side of the business.
But perhaps kaChing, like so many other web firms who’ve had their hands slapped by users, erred in how the changes were communicated and eventually carried out. Users complained that they were blindsided by the changes and many don’t enjoy being relegated to Facebook and all that the massive social network entails. Perhaps kaChing planned all along to just partition a subdomain for virtual portfolio managers. Regardless, the snafu erodes a lot of the trust in kaChing’s fan base. I’m not sure what to make of the break in democratization, a core tenet of kaChing’s — I’ve asked for clarification from the company but haven’t received it yet.
I’m going to chalk up the mistake to a rookie klutz move. kaChing and Covestor do have something very valuable to offer both aspiring asset managers and investors looking for the next Buffett. I don’t want to see kaChing go down the Vestopia route (another competitor that eventually changed its business model entirely). Regardless of what happens, it will be interesting to watch in 2010.
