Silicon Valley start-ups aim to take fear out of stock buying

Article by: PETER DELEVETT , San Jose Mercury News
Updated: August 4, 2012 - 5:34 PM

Two companies have platforms they say will help small investors.

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For a place that's made its bones inventing chips and routers, Silicon Valley has carved out a neat little niche bringing financial services to the masses.

Now a pair of start-ups is getting into the action with platforms they hope will make it less intimidating to buy stocks. San Mateo-based Motif Investing launched publicly in June to let small investors buy baskets of up to 30 stocks -- organized by theme -- for $9.95 a pop. A month earlier, Loyal3 of San Francisco emerged to let people buy stock in their favorite companies via Facebook for as little as $10.

Both companies say they can give small investors more control and lower fees and commissions than mutual funds. "This is empowering people," said Motif Chief Executive Hardeep Walia, who formerly helped manage Microsoft's massive investment portfolio.

His start-up offers an online marketplace that aggregates companies into "motifs," or ideas. You can, for instance, buy into a motif having to do with senior care, or pets, or mobile technology, or even vices (fast-food companies, gunmakers, etc.). Users can put as little as $250 into each motif, and the site offers tools to weigh how risky each is and how its returns compare to the S&P 500's.

Former Securities and Exchange Commission Chairman Arthur Levitt, who is advising the company, said the idea appeals to a new breed of tech-savvy investors. "These are kids who grew up with iPhones and BlackBerrys and might be very comfortable with making investments and sharing them on social media," he said.

He and Walia hope Motif's social aspect, which lets users invite friends to weigh in on their portfolios, will help produce better-educated investors.

MIT finance professor Andrew Lo loves Walia's idea of using technology to democratize and simplify investment information. While he said investors should approach any new online platform with caution before shipping their financial activity into cyberspace, Lo predicted more start-ups will get into the act as consumer dissatisfaction with big financial institutions increases. "I think this is the beginning of the wave of the future," he said.

That's certainly what Loyal3 CEO Barry Schneider thinks. After selling a previous company to DuPont, Schneider was living the life of an investor when he ran across Loyal3, known then as StockLinc, in 2009.

The start-up's "customer stock ownership plan" is similar to the employee stock ownership plans that let average workers buy into the companies they work for in small bites.

Schneider spent three years lining up technologists to bring the product to market. The company now employs close to 60; its backers include former Facebook general counsel Chris Kelly.

Fifth & Pacific, the parent corporation of such trendy retailers as Lucky Brand, Juicy Couture and Kate Spade New York, last month became the first to sell stock using Loyal3. Visitors to those brands' Facebook pages see an "Ownership" button, similar to the more recognizable "Like" button, that walks them through Loyal3's stock-buying program.

Schneider won't specify how many trades he's handled so far, but he notes that more than 80 percent of Americans don't own individual stocks, in part because they're scared off by brokerage fees.

By processing large numbers of small transactions effectively, he said, his company can eliminate the costs that help drive those fees. "Our platform seeks to democratize the markets," he said.