Finding a problem to fix

BC grads want to make it easy to track group expenses

Standing in line at the Anna's Taqueria counter at MIT, Rich Aberman and Bill Clerico suddenly notice a sign: No credit cards accepted, cash only.

"It's barbaric!" Clerico exclaims, before setting off to find the nearest automatic teller machine. A few minutes later, tearing into lunchtime burritos, they laugh and joke that the whole thing was just "a stunt we pulled to show that cash is antiquated," as Aberman puts it.

The two recent Boston College grads are working on a new online payment system, WePay Inc., to manage the way groups of people collect and disburse money. Renting a ski house with friends this winter? They want to address the problem of making sure that whoever stocks the fridge for Presidents' Day weekend gets repaid.

Even in turbulent economic times, entrepreneurs can't help but fixate on opportunities to solve unsolved problems. And while lots of start-ups have tried unsuccessfully to change the way transactions work on the Internet, or with mobile phones, Aberman and Clerico see it as an area of tantalizing opportunity: Digital transactions are on a steep growth curve, recession or not, and they don't always work as smoothly as they could.

Back in 2000, Lee Hower was working for a Silicon Valley company that was trying to introduce a new scheme for online payments, focused specifically on how buyers and sellers could pay one another after an auction took place. In the wake of that year's Nasdaq crash, "we had $100 million in the bank, but we were burning $10 million in cash a month, because of the size of the organization, and problems with fraud," says Hower, now a principal with Point Judith Capital, a Providence venture capital firm. "Also, we were not generating much revenue."

But Hower's company managed to earn consumers' trust, made it easy for anyone with an e-mail address to accept a payment, and tapped into the market of small-scale eBay merchants who were trying to build businesses online. The company, PayPal, managed to go public in 2002, and was acquired later that year by eBay for $1.5 billion. In 2007, it generated $1.8 billion in revenues for its parent company.

For WePay, and many other digital payment companies, the PayPal example is their North Star. (Last week, eBay bought another payment company, Bill Me Later, for $945 million in cash and options.) Aberman and Clerico met at Boston College; after graduating last year, they set off on different career trajectories. Aberman had been accepted to law school and Clerico was working for an investment bank when they stumbled on the problem of planning events as a group and collecting the cash.

Aberman was planning a bachelor party for his brother, and he asked Clerico whether there was a service he should use to divvy up the expenses; Clerico had run into the same issue with his Celtics season tickets. "Our generation pools expenses a lot, whether it's for a trip or a bunch of roommates sharing a utility bill," Aberman says. While PayPal is focused on one-to-one transactions, the service they're building aims to handle the complexity of many people in a group paying for many different kinds of things (think car rental, hotel, meals, and gas on a long road trip) - and squaring everything afterwards.

Plugging into popular social networks like Facebook could help their start-up take off, they say. Social networks allow users to add "widgets," or specialized applications, to their profile pages. A WePay widget might offer updates on how much was being spent, and on what - and then keep tabs on who had paid their fair share.

But other companies are honing in on the intersection of social networks and money, too; a widget called ChipIn, for instance, already allows people to collect money for a charitable cause or a group expenditure, though it doesn't have many advanced features, such as allowing different members of a group to submit expenses and have them approved by a group leader. Social networks themselves might also pursue the opportunity. "We're hustling," Clerico says. "We think we can beat other people to market."

And persuading people to change the way they buy things, and trust a new start-up, is tough. Peppercoin, a Waltham company that aimed to introduce new technology to support "micropayments" of less than a dollar, raised more than $14 million but eventually was sold for an undisclosed sum. (The lure of micropayments is that Internet users might be willing to pay a dime or 50 cents for access to content, like a car review or a short how-to video. Credit cards don't support those easily.) Cyphermint Inc., a Marlborough company that enables mobile phones to be used in transactions, filed for Chapter 7 bankruptcy last summer. Its assets were purchased at auction by a group of investors who'd earlier put money into the company, and it continues to operate, according to Dennis Bache, the company's head of sales.

The difficulty of making a dent in the transaction market hasn't gone unnoticed by venture capitalists. Brad Hoover, an associate at Cambridge-based General Catalyst Partners, says he has been following the online payments sector, but the firm "hasn't yet placed any bets." With mobile payments, Hoover says, "all the trends support the idea of using the phone as a payment mechanism, but people have been too optimistic about how long it will take to get there."

Highland Capital Partners also has a junior-level person looking at payment companies, but that firm hasn't done any recent deals, either. Dan Nova, general partner, says his firm backed CheckFree Corp., an electronic bill payment company, in the 1980s. "Name three other companies that have done as well as PayPal," Nova says. "It's hard. Sometimes there are only one or two winners in a given space."

Aberman and Clerico are putting the finishing touches on a basic demo of the WePay system, which they've hired software contractors to build. They plan to start meeting with investors this week, looking to raise $1 million or $2 million. "There's definitely interest," Aberman says, but it's still hard to tell who might actually step forward to invest. They hope to have a beta site available to the public by early next year.

Lee Hower at Point Judith has met with WePay's founders, but hasn't yet heard their formal pitch. He says he believes there are opportunities for entrepreneurs to find important problems to solve, even in tough times. After leaving PayPal, Hower went on to help start LinkedIn. The founders began brainstorming in 2002, with much of the tech world and the larger economy still in a funk; the company went on to grow into the largest social networking site for businesspeople.

"Negative macro trends are a bad omen, for sure," Hower says. "But they also affect things like finding office space and hiring people. The nuts and bolts of building a business can actually become easier when the overall economy is trending downward, as opposed to when it's in a bubbly state."

Scott Kirsner can be reached at kirsner@pobox.com.