Last fall when we started looking seriously at personal financial services, we realized something important about that kind of personal productivity application and the web. When you move word processing from the desktop to the web not much happens. Writely (now Google) is still a functional utility. It may be accessible from an internet café, it may be a little easier to share authoring in some cases, but it is still basically a word processor. When you move a personal financial management system to the web, it becomes more than “personal”.
Balancing your checkbook using desktop software is a lonely pursuit. You may feel better knowing where your money went, and even have some idea about how you did against your budget, but you haven’t learned much more than that. Your relationship with your software is defined. It is a utility. Its value is limited. The best it can do is save you a little time each month when you plow through an unhappy chore.
On the web it can be a whole different story. If you manage your expenses on a web based service you have the opportunity to contribute to community and to take advantage of its collective wisdom. Allowing your service provider to aggregate data anonymously makes it possible for that provider to deliver a service that is better than desktop software in a number of important ways.
1) Providing very useful analytics, that compare your behavior to others like you. Do you spend more or less than most folks in your community for cable television, or lawn care?
2) More information about the vendors you use every day. Is it going to cost you more to bounce a check at Wells Fargo or at Wachovia? The answer turns out to be less than obvious.
3) Information about how others feel about service providers in your world. It turns out that many folks are willing to say how they feel about the places they spend their money. Would it help you to know that of the three dry cleaners in your neighborhood, one had a 100% satisfaction rate?
4) Peer produced data categorization and cleansing. I have given up using my annual gold card statement from American Express, because half of the vendors are listed as an unrecognizable string of characters, and even when they get the vendor right, they often do not put that vendor in the right category. Once I contribute my data to a co-op, a lot of these things are fixed much more easily. If anyone participating in the community recognizes an incomprehensible string of characters as “Whole Foods” and makes the change in their account, everyone in the community benefits from their contribution. After three or four people do it, the service provider can making the change. If most people categorize expenses in certain ways, the service provider can usefully suggest categories, and auto-fill entries to speed you on your way.
5) The ability to import other data into the community to make it possible for you to automatically compare your spending against a personal goal. Would your behavior change if you could benchmark your current spending patterns against a respected environmental group’s rating of your vendors based on their ment to sustainability?
All of this is possible on the web because the architecture of the web enables data sharing and re-use. Trying to do this with a desktop application would be next to impossible.
There are other benefits of moving personal financial services to the web. Using a web based financial services provider makes the notion of personal financial services less personal and more communal. Managing your finances within a community allows you to share your goals with others and learn form their experiences and to share yours. Many of these folks have grappled with financial challenges like yours. Everyone wants to be able to be able to send their kids to college. Would it be helpful to know how other people in similar circumstances did that? So you get the idea. When you move word processing onto the web not much changes; when you move personal financial services onto the web everything does. Once we realized that we started looking in earnest for an opportunity to invest in a service provider in this space.
We talked with a number of companies before deciding that Wesabe was by far the best investment opportunity in this important emerging market. We considered a number of different criteria.
1) First and foremost we wanted to back a team that had a deep understanding of the web. We were emphatically not looking for an “online Quicken”. The idea of moving a functional utility like Quicken to the web without fundamentally changing it to take advantage of the unique characteristics of the web is just plain dumb. We wanted an implementation that recognized the value of the al data set. This is not survey data. It is not a community member saying I plan to do this. It is about what they did. When I discussed this with Joshua Schacter, the founder of del.icio.us, the first thing he said was “you can’t spam it”. No one is going to buy an extra pair of shoes to change their status in the community, or at least they are not going to do it for very long. We were also looking for a team that had an intuitive feel for how to package that data in ways that were immediately useful to the members of the community.
2) It was critical to us to find a group that understood and respected their user’s interest in this data. We were very impressed with Marc Hedlund and Jason Knight’s approach to privacy. It would have been easier to work with an aggregator to import data into the system, but that would have required a member to upload their user name and password to the service provider. Instead they engineered a way to leave that very sensitive data on the user’s desktop. We were also impressed with Marc and Jason’s ment to make the data portable. In striking contrast to the roach motel data strategy of many providers, they built an export from Wesabe feature into their very first release. All of the work a user does to clean and organize their data in Wesabe’s system is exportable at any time.
3) We wanted to invest in the leader in this new market. We learned from our experience with del.icio.us that the early adopters of web services respect the authentic category creator. Soon after the value of del.icio.us became broadly recognized, there were a number of fast followers, many of whom had arguably better interfaces and features, but it had little impact on del.icio.us’ continued growth. We recognized that this would be a network effect business, and that the company that was able to reach a critical mass early would be likely to maintain that advantage, so investing in a company whose service was launched and where users were already contributing was important. Google’s early lead in search marketing has allowed it to continue to prosper. They still get 80% more revenue per search than Yahoo. Wesabe was founded in December of 2005, launched in November of last year, and recently establishing itself as the category creator. It has substantially more users and more s, and more dollars flowing through its system than anyone else in the category.
4) We were looking for a team that had experience and skills to be able to define this novel service and to deliver it at scale. Marc is an excellent engineering manager and technical visionary. He has over his career been consistently able to attract great engineers, motivate them to take on hairy projects, and then to manage those projects to a successful conclusion. Jason is a consummate marketer with unusual breadth that comes from having worked not only in a range of industries but across cultures as well.
5) Finally, we wanted to back a team that was doing this for the right reason. Fred posted some time ago about motivation and entrepreneurship. Jason and Marc launched Wesabe because they were convinced that they could combine their skills to support a community of users who could help each other reach their financial goals.
So, we are thrilled to confirm that we did lead the Series A investment in Wesabe. We are excited about the opportunity to fundamentally transform the way people manage their money. We are pleased that we had the opportunity to invest in the early leader in the space and to be working with both two great entrepreneurs and OATV, the firm that made the seed investment in Wesabe.