Investing social network The UpDown has a slightly different take on investment communities than the likes of Marketocracy, Covestor, and others (see coverage of others here, here, and here). Users invest a simulated portfolio starting with $1 million and are paid based on their ability to consistently out-perform the S&P 500. And users who refer a friend pick up 10% of any earnings that friend rakes in. Since the beta launch in June, members have made thousands of dollars off the site.
The company’s ultimate goal, says co-founder Michael Reich, is to build up a group of users who consistently out-perform the major indices and then create an investment vehicle that mimics the behavior of those users. The challenge is to pinpoint a subset of users whose investment behavior is both trustworthy and scalable to large investments. (A corporation’s liquidity and market valuation may be problematic at higher investment amounts.) Reich is optimistic that by cultivating the right mix of online members, he’ll have the data he needs to run a multi-billion dollar fund capable of outdoing the markets.
UpDown has ten thousand registered users, with about a thousand new users signing up every week. The demographics aren’t clear but seem, according to Reich, to be heavily tilted towards students. But given the substantial returns the top users have yielded, they’re not performing badly. And the user base may change as the site gains traction.
Swiss angel investor Joachim Schoss provided the initial $500k in funding to the Harvard Business School startup. The company is currently in talks to close another angel round of $500k and will most likely be looking for a further $2 million in the summer.
It has three full-time employees (two co-founders and a marketing person) and seven part-time employees based out of Cambridge, Mass.