First of all, the terms “downturn” and “recession” don’t do justice to the current climate, says early-stage tech investor Andy Sack. As he puts it, “This is the seminal event of our lifetimes. This is our World War II. I guarantee I’ll be talking to my grandchildren about the Depression of 2009-10: ‘Make sure you save.’”

Sack was speaking at the MIT Enterprise Forum Venture Lab event in downtown Seattle last night. He was joined by Michelle Jacobson Goldberg, a partner at Bellevue, WA-based Ignition Partners who is on the board of Mpire (maker of Widgetbucks), Visible Technologies, and SEOmoz. The room was packed with scores of entrepreneurs looking for financing advice. “It’s ugly out there, and raising money has never been f-ing harder,” Sack told them.

What’s interesting is that both Ignition and Founder’s Co-op, Sack’s seed-stage fund with Chris DeVore, have made investments in the past 90 days. Founder’s Co-op has made bets on Frugal Mechanic; LookStat, an analytics and workflow-automation startup focused on the microstock photography industry (this was news to me); and a new smartphone company that hasn’t been announced yet. Meanwhile, Ignition announced earlier this week that it has led a $10 million investment in Silicon Valley-based Zenprise, a mobile-management software firm.

Goldberg and Sack spoke for about an hour on their perspective as investors, what startups need to know to get funded these days, and what the hot (and not so hot) areas of investment are. Here’s my top 10 list of takeaways:

10. Valuations are way down. “Anything that’s early, if you used to raise $3 million, you might raise $1 million now,” Sack says. And count on a similar calculation for the valuation, he adds.

9. Investors are seeing more pitches than ever. “There’s been an incredible amount of deal flow,” Goldberg says. To which Sack adds, “Deals are getting done, but more slowly and with a higher bar…Deals getting done really have to resonate with a customer base.”

8. Your next financing is your last. “Everyone wants to see your break-even plan,” says Sack. “Financing risk is higher than technology risk.” And Goldberg adds, “Take the money …Next Page »

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MoneyAisle.com, a reverse-auction site where lenders compete to offer potential banking customers the highest rates for certificates of deposit and high-yield savings accounts, is getting a big boost from the financial industry itself. NeoSaej, the Burlington, MA-based company behind MoneyAisle (profiled here last month), said today that it has raised over $7 million in new funding, bringing its total financing to more than $10.5 million. The new round was led by an entity that neoSaej, in a news release, identified only as “a large Boston-based money management firm,” but Xconomy has learned from a source outside the company that it is Wellington Management, which oversees more than $550 billion in institutional assets.

Stata Venture Partners II and NeoNet also participated in the funding round. Mukesh Chatter, neoSaej president and CEO, said that the company plans to put the money toward expanding the MoneyAisle platform and beefing up marketing efforts. “We will use the funds primarily to develop additional applications in lending, enhance existing deposit applications, build up promotions and advertising, and recruit new team members,” Chatter tells Xconomy.

MoneyAisle has grown quickly since its June 9 launch. Customers put more than $1 million into CDs and savings accounts set up through the site in its first week alone. At least 72 banks have joined the MoneyAisle network. (Each member bank receives software that allows them to participate in neoSaej’s automated, real-time, Internet-based reverse auctions and to specify, among other things, how aggressively they’d like to bid against competing banks.)

Almost a quarter of the participating banks are in Michigan, where the company has established a strategic alliance with the Michigan Bankers Association. The association has agreed to promote MoneyAisle’s services to its member banks.

“The interest in the MoneyAisle site on the part of both consumers and the banking industry has been very gratifying,” Chatter said in neoSaej’s news release. “After being live for just one month, our consumers are receiving better rates than well-known banking aggregator sites for some of the most popular financial products on the market.”

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The Web has brought comparison shopping to nearly every corner of commerce, including banking. In fact, thanks to years of advertising, LendingTree’s tagline—”When Banks Compete, You Win”—is one of the most familiar on the Internet. But now a startup in Burlington, MA, is arguing that the “competition” on LendingTree and similar financial-industry websites is often rigged to favor the sites’ advertisers. What’s needed to even things out, the company says, is a real competition—one where financial institutions actively bid against one another for customers’ business.

And that’s exactly the service that the startup, neoSaej, is launching today after nearly two years in stealth mode. The company’s consumer-facing website, called MoneyAisle, is an entry point for “reverse auctions” where consumers specify which financial products they’re looking for, then sit back and wait to see which bank responds with the best offer.

At first, MoneyAisle is offering just two kinds of financial products, certificates of deposit and high-yield savings accounts. These products are simple to start off with, explains neoSaej founder and CEO Mukesh Chatter, because they only involve a few variables. The buyer specifies how much money they want to put into a CD or account, and over what time period (typically 6 or 12 months); then banks compete to offer the best interest rate.

“The key difference is the active competition and the buyer-centric auction—that’s what separates us from the rest of the crowd,” says Chatter. “Also, we’re completely free of advertising, so there is no influence from financial retailers whose links only show up because they paid the vendor for an ad.”

The idea for MoneyAisle was born three years ago when Chatter was searching for flat-screen TVs for his new house in Concord. “I went to Best Buy, Circuit City, and the comparison shopping sites and found a huge price variation,” Chatter recalls. “For 52-inch TVs the price varied from $2,800 to $4,200. That led me to say, why is it that every time you want to buy something you have to go through this comparison process? There has got to be a better way. I asked my wife, who is a much bigger shopper, and she said, ‘That’s the way life is, get used to it.’ A lot of other people said the same thing. But as an entrepreneur, you can either say, ‘That’s the way it is,’ or you can do something about it.”

What Chatter and partners Rohit Goyal, Bob Watterson, and Ray Stata (the co-founder and chairman of Analog Devices and a major benefactor behind MIT’s Ray and Maria Stata Center) decided to do was build an online system that lifted the burden of comparison shopping for commodity items off of consumers by allowing vendors to bid for their business. But the privately backed company, which now has 41 employees, couldn’t tackle the entire e-commerce world at once—so Chatter and his partners decided to focus first on the banking sector.

The choice made sense for several reasons. For one thing, most financial products are pure commodities—a 12-month, $50,000, FDIC-insured CD is the same no matter what bank you’re putting your money in. Just as important, banking was an industry where Chatter and his colleagues believed they’d be able to round up lots of participants for their reverse-auction platform. In the United States, a handful of mega-banks like Citibank (NYSE: C) and ING (NYSE: ING) spend hundreds of millions every year on marketing and advertising, driving up the cost of pay-per-click Web advertising and making the customer acquisition process very expensive for small- and medium-sized banks. At the mortgage comparison site BankRate.com, for example, ads for CDs cost advertisers roughly $6.50 per click, according to Chatter—and the “conversion rate” for such ads, the fraction that lead to actual purchases, is only 0.5 percent to 2 percent. Ads sold through Google’s AdSense network are even more expensive: $14 per click.

Small and mid-size banks “have to pay for those clicks in advance regardless of the conversion rate, and regardless of whether the person is going to deposit $2,000 or $20,000,” says Chatter. “So the INGs of the world are really eating away at their business, and there is nothing they can do to grow. It’s the same thing whether you want to raise deposits or give out loans or offer credit cards.”

In other words, Chatter and his partners see the Web’s existing comparison sites and advertising networks as expensive middlemen getting in the way of efficient connections between buyers and sellers of banking services. So, like good Internet entrepreneurs, they came up with a way to cut out those middlemen.

MoneyAisle is essentially an automated, Web-based reverse-auction platform with consumers on one side and banks on the other. Behind the scenes is a technology Chatter and his partners call “Seller Automated Engines” (the SAE in neoSaej). Say someone comes along with $10,000 in pocket change that they’d like to …Next Page »

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The Center for Future Banking announced yesterday by the MIT Media Lab and Bank of America is the trailblazing computer lab’s biggest corporate funding win in years—perhaps its biggest ever. But it also represents a new type of industry-academic collaboration for the Media Lab, one in which the company footing the bill will have more say over the questions researchers are studying than previous Media Lab sponsors have been afforded.

That’s the word from Media Lab director Frank Moss and MIT professor Deb Roy, the center’s founding director and principal investigator. I spoke with Moss and Roy yesterday, shortly after MIT released the news that Bank of America will commit at least $15 million, and possibly up to $25 million, over the next five years for research on the future of the banking industry—particularly the ways technology is changing consumers’ experiences of banking and their behavior around saving, spending, risk, and planning. Projects funded through the new center will involve areas as disparate as architect William Mitchell’s studies of the changing ways people interact inside network- and sensor-saturated public buildings and cognitive psychologist (and best-selling author) Dan Ariely’s work on why we often spend money unwisely and other forms of “predictably irrational” behavior. But in a break with past practices with sponsors, Bank of America will help choose the specific questions the researchers consider, and will send visiting fellows to participate directly in the research, according to Moss.

The center’s overall mission is to help the banking industry (and Bank of America in particular) look beyond innovations such as online banking and prepare for the field’s long-term future. “If you look at the big picture of banking for the past decade or 15 years, they have been in the process of re-architecting from the back office on out, with a new focus on consumer banking and consumer services,” Moss says. “They’ve done a great job at Bank of America and other banks of providing self-service access to back-office things that were previously only in the realm of people inside the bank. But the whole world that their customers are in is changing—and what those customers are doing is dramatically changing, as they change their social habits and engage in social networks, and communicate in different ways—and they are asking the question, ‘What is the next step beyond giving customers access to information?’ How can banks be a new factor in the lives of customers?”

These are exactly the kinds of question the Media Lab is used to asking about other industries, such as the news business, robotics, education, and entertainment. But beginning with the Bank of America partnership, it may be investigating these questions with a slightly more practical bent.

Throughout the 1980s and 1990s, under the leadership of co-founder Nicholas Negroponte (now director of the One Laptop Per Child Foundation), the Media Lab attracted a flood of industry research dollars—all in spite of a tradition of “open IP” that bars sponsors from having exclusive access to the work produced. But after Negroponte gave up executive leadership of the organization in 2000—and especially after the dot-com bust brought the days of abundant funding to an end—it appeared to many outsiders that the Media Lab was without a single strong leader who could sway contributors to loosen their purse-strings unconditionally.

When Moss was appointed director in February 2006, he said it was time to apply a business leader’s sensibility to solving the lab’s financial problems, and to better accommodate the needs of the lab’s sponsors. “What has changed over the past seven or eight years is that simply coming here and rubbing shoulders with very smart, creative people is often not enough for our sponsors,” Moss told MIT’s Technology Review magazine shortly after his appointment. “They need us to help them make a connection between …Next Page »

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If you live inside a Norman Rockwell painting or a Frank Capra movie, then perhaps everyone you interact with knows you by sight and can vouch for your identity. But in the real world, we tote around all sorts of digitally encoded data to verify that we’re entitled to carry out our daily business: the magstripes on our credit cards, the bar codes on movie and sports tickets, the RFID chips in the access cards and key fobs for offices and apartment buildings. Now Cambridge startup iCache wants to simplify things, storing all that data into one credit-card-sized gizmo called, logically enough, the iCache.

The device is part wallet, part Swiss Army knife. It stores personal data in encrypted form on internal microchips, and retrieves that information on demand in whatever format is needed. Want to charge dinner to your AmEx card? Choose that account from the menu on the device’s LCD display, and the card number will be temporarily recorded on the mag-stripe of a plastic card that slides out of the device. Downloaded an electronic dog-food coupon on your PC last night? Just call it up on the display and hand it to the pet store cashier, who can wave it over her barcode scanner.

But the catch in the i-Cache, excuse the pun, is that only the person who owns the data can retrieve it: the device won’t cough up a byte of data until it verifies the owner’s identity via a built-in fingreprint scanner. This supertight security, coupled with the device’s Jack-of-all-trades abilities, could mean an end to bulky wallets and purses, not to mention concerns about loss and theft. If your credentials are stored on an iCache, you don’t have to call dozens of credit card companies and other agencies to get all your old cards canceled and new ones issued. Just call iCache (or, more likely, your bank, since the devices will be distributed first to the platinum customers of big financial institutions), and a new device can be programmed and shipped overnight.

iCache CEO Jon Ramaci, a former member of the manufacturing and technical group at database giant Oracle, says the idea for the iCache device came from working with Oracle customers and watching where information flows—and jams up—in the electronic economy. Says Ramaci, “Every part of the economic flow, from the factory to the warehouse to the point of sale, is digitized today with the exception of the consumer, who is walking around with what amounts to a pocket full of insecure floppy disks—really, a 40- or 50-year-old technology.”

The fingerprint scanner is only the first layer of technology protecting personal data stored on the iCache from potential hackers and identity thieves. Data packets aren’t passed anywhere, even between the device’s subcomponents, unless a secure “header” based on the owner’s fingerprint scan is verified first. Components on the device can’t be replaced or tampered with, since they won’t talk to each other at all unless their signatures identify them as the same components the device was “born with” when it was manufactured. And though the card’s data is backed up on remote Web servers, it’s broken up into parts that can only be reconstituted on the device itself. The device far exceeds the security standards issued by Mastercard and other financial giants, Ramaci says. “A good two years’ worth of engineering went into this.”

A “major, major” bank whose name Ramaci says he is not yet at liberty to disclose just completed consumer tests of the iCache in Los Angeles and Chicago. Some 86 percent of users viewed the devices favorably, he says—a very high number in a market where a 20 percent rating is enough to get some products get launched.

Ramaci says that his company, which is backed by angel investors and is in the midst of Series A negotiations with venture capital firms, will announce distribution partnerships with banks and other organizations in early November. The first iCache devices could go out to these companies’ customers as early as the second quarter of 2008. “We’ve talked with many financial institutions, and one, they’re all looking for ways to create stickiness and deeper, more meaningful relationships with their customers,” he says. “Two, they’re looking to prevent a lot of the fraud that goes on now. We are leveraging that.”

ICache devices won’t be available for purchase, at least initially. So there are, apparently, some things money can’t buy. But Ramaci says he recognizes that certain early adopters—perhaps the same people who paid an extra $200 to get an Apple iPhone two months before everyone else (the author included)—will want their own iCaches to flash. “We are not ruling out a direct-to-consumer model,” he says. “We hope to have that by late 2008.”

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I’ve been using Quicken and Turbotax to manage my finances for so long that I don’t even blink at spending the $30 to $100 that Intuit extorts every year for the newest version of the programs. But for an entire generation of younger adults, spending that much on a piece of software that comes in a box —indeed, spending money on home-PC software, period—is unthinkable. (Though, paradoxically, they don’t seem to have a problem plunking down $60 for Gears of War on the Xbox 360).

This 18-to-34 age group is the target demographic for Geezeo, a personal-finance website and mobile-data service launched in January by Shawn Ward and Peter Glyman, veterans of tax-acccounting software company Gainskeeper. “For a lot of them there’s an expectation that you can find what you need on the Web, and there’s also a psychological thing where they say ‘I’m not going to use my parents’ Quicken,’” Glyman told me yesterday. Yet these people do have checking accounts, debit and credit cards, student loans, plenty of daily expenses, and lots of debt—all the ingredients that make for financial disaster, if managed carelessly.

Glyman and Ward, who have offices in Framingham, MA, designed Geezeo to help users control their spending, reach financial goals, and get advice from peers, using just their Web browsers and mobile phones. Once you’ve provided Geezeo with your personal information such as checking account numbers and banking passwords, the site’s back-end software will grab the latest transaction records from your bank and credit card companies and automatically tag each purchase; it will figure out that the $40 you spent at the Exxon station, for example, should be tagged “Gas.”

The automatically generated tags, which are analogous to the spending categories in Quicken, help users determine whether they’re spending too much on certain items, such as dining out. Because the same tags are used for all members, individual users can compare their spending in each category to average figures for other Geezeo users.

Geezeo’s mobile component allows members to access their accounts from their cell phones. If you’re out shopping and need to know whether you can afford that beautiful 42-inch high-definition TV, texting “geezeo” to 4-1411 will elicit a return message with your current account balances.

Ward and Glyman say they started from the premise that young people today need help managing their money, especially given their propensity to pay for everything using a debit or credit card. “Debt levels are astronomical, savings rates are at an all-time low, consumption is at an all-time high, and there are just more and more creative products to buy, which helps people get deeper into debt,” says Ward.

Geezeo earns revenue by generating sales leads for banks and credit-card companies, based on its own analysis of how members’ accounts are performing. “If you have a savings account and you’re getting a bad rate, for example, we’ll identify a better product for you, based on product data we have and feedback from other users,” Glyman explains. For every member who switches to a new financial institution, Geezeo collects a bounty.

Glyman and Ward launched their service in October 2006 under the name DebtFolio. At first, the business focused only on helping users manage their credit card debt. “But we realized that you can’t just look at the debt side—you really need the whole picture, all of a person’s finances, to help them with product recommendations,” Ward says. The company quickly rebranded itself early this year under the more playful name Geezeo—a riff on G for Grand, as in “You owe me 10 G’s”—and added the ability to track bank accounts, loans, mortgages, and (coming soon) brokerage accounts.

The company also launched mobile and social features to capitalize on the interactive “Web 2.0″ trends attracting so many users to online services. In addition to seeing how other members spend their money (in aggregate—no individual data is revealed), users can submit personal goals such as “Pay off my American Express” or “Stop buying useless s–t” and exchange advice and encouragement with others who’ve listed the same goals. They can also join discussion groups with themes like “Broke Photographers” and “Boston on a Budget.”

Ward and Glyman won’t say how many members Geezeo has signed up so far. But because of its huge student population, the Boston area is an ideal launching pad for the company, says Ward. “With all the colleges in the Boston area and close by, you couldn’t ask for a better demographic,” he says. “But what doesn’t get recognized is that there’s also a really strong entrepreneurial movement going on in Boston, with lots of events and energy and investment. Those two factors together make it a perfect time for us.”

The company is in the final stages of arranging angel funding and will soon enter a venture funding round, say Glyman and Ward. And while the company’s current focus is on acquiring more members and rolling out new features, hopes for a liquidity event sometime in the future are certainly on the minds of the co-founders. They point out that credit-reporting giant Experian purchased debt-consolidation site LowerMyBills.com in 2005 for $330 million. “Certainly, there is an opportunity for Geezeo to be the next Intuit,” says Glyman. Just without the boxed software.

CORRECTION 10 Aug. 2007: The original version of this story, Shawn Ward’s name was misspelled Shawn Ford. The author regrets the error, particularly because his hard-of-hearing great-grandmother used to call him Ward.

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