Quantopian is not your typical hedge fund. The Boston company uses crowdsourcing to develop trading algorithms. It got a boost last week when hedge fund billionaire Steven Cohen gave Quantopian up to $250 million to invest and another $2 million to fund expansion. For John “Fawce” Fawcett, Quantopian’s 39-year-old cofounder and chief executive, the investments are a validation of five years of work. It should help the 45-employee company expand staff, get more investors interested in turning over their funds to Quantopian to manage, and entice additional amateur traders to come to the company’s online platform to develop their strategies for investing. Fawcett spoke recently about what it takes to run a startup and the future of money management.
1. Fawcett didn’t expect instant success. When most people think about startups, they envision overnight tech sensations such as Instagram, Uber, and Facebook. But those are the exceptions, said Fawcett, who grew up in Lowell. Most entrepreneurs will spend years working on an idea, trying to get investors and consumers to notice it, and finding the money to keep testing it before it’s ready for mass adoption.
“Creating the idea is the easy part,” he said. “There are micro-challenges. There are thousands and thousands of them. You have to have a strong stomach.”
2. Fawcett, who graduated from Harvard University in 1999 with an engineering degree, moved to San Francisco for his first job at the tail end of the dot-com bubble. His first project was helping a company put nature videos online. He worked late nights trying to deliver the project on time but just before it was ready to launch, Fawcett found out the company was shutting down. The videos were up for a week.
“I remember thinking, ‘But my mom never even saw it,’ ” he said.
3. Still, the experience did help him land a job encoding videos for Major League Baseball as the organization started to put games online. But Fawcett eventually decided to move back to Boston to be closer to his girlfriend, now his wife, who was going to medical school. He took a job with a local hedge fund helping to pick technology stocks. He admits he was ill-suited for the job and was more interested in writing code to keep track of the research on the stocks than actually picking good bets. He left the hedge fund to start Tamale Software, which provided research management technology for asset managers. Tamale was eventually bought by Advent Software Inc. in 2008 for $28 million and shares in the San Francisco company.
“I never stopped coding,” he said. “Picking stocks to me, it’s like black magic.”
4. Quantopian tries to demystify and democratize the investing process by giving amateur traders — everyone from scientists, doctoral students, professors, and financial analysts — access to data and the ability to test whether their investment theories are right. Fawcett said Quantopian has 85,000 members and it’s searching for the investment equivalent of an ‘aha moment’: new strategies that lead to solid returns, but aren’t being used in the market. These complex algorithms that Quantopian’s members are writing are the future of investing, Fawcett believes, because there is so much data available to process.
“I think the industry is changing so rapidly. There’s so much real-time data sources. There’s little capacity to interpret that data. It’s not feasible for humans.”
5. Financial technology companies, which were initially seen as disrupters that would knock banks and investment houses off their perches, are increasingly joining forces with traditional institutions. Many of the startups have discovered that they need access to the data, compliance expertise, and customers that the large institutions can provide. But Fawcett said he is reluctant to cede control of Quantopian.
“The dream for me is to be an independent company,” he said. “It’s the best idea I’ve had, and the best idea I’ll ever, ever have. I want to see if it works. Ceding the control to another company, I can’t imagine it.”Deirdre Fernandes can be reached at email@example.com. Follow her on Twitter @fernandesglobe.