Financial Engines has convinced venture capitalists to invest $20 million in it to back its efforts to deliver unbiased, personalised free financial advice.
The idea behind the start-up and its Internet based financial forecasting technology was born over a cup of coffee at Stanford University's student union, where Bill Sharpe, a professor in the business school, and Joe Grundfest, a law professor, met to short circuit their emails.
Sharpe told Grundfest he was going to use the Internet to provide ordinary investors with information about scientific techniques that simulate how investments might perform over time.
The two decided to take these techniques to a wider audience and met with Craig Johnson, cofounder of the Venture Law Group, a Silicon Valley based law firm that specialises in helping entrepreneurs.
In late 1998, Financial Engines launched its first product, the Financial Engines Investment Advisor. It also announced its first customer, Alza Pharmaceuticals, and its first alliances with Ernst & Young, State Street Global Advisors, the third largest US investment management firm, and Hewitt Associates, the largest US employee benefits consulting company.
Sharpe said: "We wanted to bring the key tools of the trade to individuals."
He added that to design the best portfolio for a customer, the Forecast Engine computes thousands of potential economic scenarios and historical rates of return for 15 asset classes.
The software analyses interest and inflation rates, the performance of large, medium and small US stocks in both value and growth investment styles, and the stocks of emerging markets, Europe and Asia. It also looks at the expected returns of long intermediate and short term government bonds, US corporate bonds, mortgage bonds and international bonds.
Jeff Maggioncalda, Financial Engine's chief executive said that the ability to make individual stock recommendations would be added next, and the company's database already contains historical data on 9,500 mutual funds and 4,500 stocks.
According to Michael Gazala, an analyst at Forrester Research, however, the biggest hurdle for the new firm is brand recognition. "Right now, it has no name," he said, although he added that it was expected to spend heavily on marketing in the near future.
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