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KaChing aims to shake up the mutual fund industry

Venture capitalists love to use the Internet to disrupt traditional businesses. But surely by now no business is left undisturbed.

Not so, says Andy Rachleff, a founder of Silicon Valley’s Benchmark Capital. He thinks he’s found a big one, what he says is “a $10-trillion market that has not had any innovation in the last 25 years and has not been affected by the Internet.”

It’s the mutual fund industry. And some valley heavyweights have joined Rachleff in his bid to rock that world: Netscape co-founder Marc Andreessen, Hewlett-Packard executive Ben Horowitz, Open Table CEO Jeff Jordan, and Kleiner Perkins Caufield and Byers partner Kevin Compton.

This team believes that mutual funds take investors’ money, but only tell them what their holdings are on a quarterly basis. The funds also charge all sorts of hidden fees. The Internet is famous for bringing transparency to a variety of businesses, but mutual funds, Rachleff says, are as opaque as ever.

Enter kaChing, a start-up that Rachleff has not only backed but has joined as its chief executive. KaChing has been around for about 18 months, accumulating 400,000 users with a Facebook application, but is now ready to unveil its business model.

The company offers up a website that any investor can use for free. The investors – some professional, some amateur – state their philosophy and show their stock picks. KaChing will then rate those investors, using a formula akin to the one that Ivy League universities use to evaluate their institutional fund managers, and anyone with a rating of 140 or more will be tabbed as a “genius.”

Any other investor can log onto the site and see what the geniuses are picking. But if you decide you like one of them, you can plunk your money down – minimum $3,000, which Rachleff says is far less than the institutional level typically required for such services – and invest like the genius of your choosing. Every time the genius makes a trade, you make the same trade at the same time, and get an e-mail alerting you to it.

To be sure, other companies out there have similar ideas. Other so-called social investing firms include Covestor, Cake Financial and PersonalRIA. Plenty of people have an eye on that mutual fund disruption.

And success is far from guaranteed. KaChing will have to persuade people to put their money behind stock-pickers who, while the site may call them geniuses, don't have the backing, brand names or Morningstar ratings of Fidelity, Pimco, Vanguard or other big funds.

-- Dan Fost

 
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