Financial tech web plays arise from ashes of economy
Former MIT computer scientist Jim Psota hopes that Panjiva can attract more gatherers of esoteric data to help serve traders.
When the world financial markets fell apart last fall, the prognosis was dire for startups bent on selling information technology to financial services firms. But entrepreneurs and investors in Massachusetts’ financial services IT sector didn’t blink: And now, three new companies founded or funded here are developing new models for both individual investors and data-driven money managers.
Panjiva Inc., a New York company with a Cambridge-based development team, is aggregating, cleaning and analyzing global trade data. Another New York firm, Covestor Inc., has taken funding from Boston-based Spark Capital for a service that allows users to automatically co-invest with other investors. A third company, Lexington-based StreamBase Systems Inc., has applied its real-time complex event-processing engine to the rising global tide of micro-blog posts on Twitter.
Providing investors with new sources of information, however obscure, remains a good business model, said Battery Ventures general partner Michael Brown, who invested in Panjiva. “When it comes to the guys who are managing money, it’s all about that little nugget of data that you can use,” he said.
Founded in 2007 by MIT computer scientist Jim Psota and former Boston Consulting Group associate Josh Green, Panjiva has taken in $5.5 million so far from Battery and a dozen angel investors. Its data sources include the U.S. Department of Homeland Security shipping records, reports from overseas factory inspectors, and a Chinese government insurer’s due diligence on eight million companies. Last week, the company launched a partnership program designed to attract other gatherers of esoteric data relevant to trade.
The two originally envisioned a customer base of importers, but Panjiva has seen growing interest from the data distribution channels that target investor communities, Green said. Overseas factories often shutter with no warning, crippling a company’s supply chain. “To the investor community, there’s often little transparency about how much (supply chain) risk those companies are facing,” he said.
Last week, StreamBase, founded in 2003 by serial entrepreneur Michael Stonebraker, announced it had adapted its complex event processing system to support semantic analysis in real time on the stream of comments and dialog on the microblog sharing service Twitter.
“It’s pretty well understood on Wall Street that companies with the best data are going to make the most money,” said StreamBase CTO Richard Tibbetts. Changing trends in brand sentiment on Twitter may be the data point that influences a decision, he said.
Covestor hopes to capitalize on trends at the opposite end of the pool, where private individuals are disillusioned with Wall Street money managers. The company’s online service, launched last week, is designed to let investors piggy back on trades and investments made by a single other investor — who may or may not be a professional.
“Right now, you’re only able to follow the however many thousand professionals around the world,” said co-founder Perry Blacher. “We all know people we think are good at investing. Why can’t I invest alongside one of them?”
To navigate prohibitions against paying commissions to nonqualified, private investors, Covestor treats its record of investors’ trades as publishable information and charges a subscription fee, Blacher said. Followed investors receive $120 a year per subscriber, and the company itself reaps a fixed management fee of 0.5 to 1.5 percent.
Covestor is similar to existing services like the Motley Fool website’s Caps network, which lets investors share predictions — except it takes out the work of researching and making investments yourself, said Richard Gibble, director of the Hughey Center for Financial Services at Bentley University.
For investors chary of part-time day trading and mistrustful of Wall Street money managers, that “plug-and-play model” may be a compelling offering, he said. “The markets are complicated,” Gibble said. “Even if you know what you’re doing, it’s not easy to make money. Even for me, I like to think I know what I’m talking about, but it takes a lot of time. If you don’t have that time, you have to outsource it.”