Be Bold, Fail Spectacularly

Insights from two FinTechs transforming the industry

Since launch in March of 2015, FinTech Sandbox has produced four Demo Days, providing participating startups a platform to demonstrate the possibilities of their product. These events are the culmination of months of deliberation and practice, designed to unzip new FinTech products, and reveal product-market fit.

Last November, the Sandbox invited alumni, Founder and CEO of Quantopian, John “Fawce” Fawcett to kick-off Demo Day 3.0. Quantopian, a platform and community for quants to research, build, test and deploy investment algos, is challenging the status quo with over 130,000 members worldwide. Skilled quants, newbies and longtime retail investors source Quantopian’s platform to learn, build and invest.

With over 500,000 algos written on the platform and a $250 mil investment from Steve Cohen of Point72 Asset Management, Quantopian has established significant influence within the financial services community. As Fawce outlines in his chat, this has both shifted and revealed a couple of key aspects of capital markets finance worth noting:

1. Hedge Funds and asset management firms are fearing a shortage of talent that can analyze and build to a complex market environment, “There’s not enough people that have the skills to analyze the data, to come up with signals, to make the investments” Fawce states. Hedge Funds need research engines behind quantitative finance to execute effectively.
2. There exist talented engineers, developers, coders, investors, entrepreneurs who are looking for outlets to employ their skills. There are skilled people out there who do this stuff in their free time.
3. The open source movement in finance, driven by Quantopian, has proliferated or enabled access to data, code, methodology, technology, and the market. You don’t have to work on Wall Street to win on Wall Street.

The execution of Quantopian, its community and ultimate success, was born in Fawce’s ingrained interest in collective good, and its intersection with finance. An early fascination with his private high school’s endowment, from which he received a full scholarship, led Fawce into the space. “I was just amazed that there was this tool people had for planning for the future, to assure that when people like me who needed help could get it, and that this established institution could propel itself into the future through financial planning. To me that was core, and how I decided what I wanted to do with my career.” These values permeate the Quantopian model. Fawce and his team have crafted a divergent platform in quantitative finance that enables participation through ‘getting started’ tutorial series, lectures on intro python, cash prize contests of up to $5,000 for the strongest algos developed that month, and of course, forums.

“I started to play around with building a back tester. I got so excited by this idea of building a platform, and then giving it away … I just couldn’t stop thinking about it.” Fawce and his team overcome impossibility in a dated market, and developed a product against the grain.

Here’s how they did it:

In the seat next to Fawce sits Adam Broun. The Sandbox invited Adam to chat this April at their fourth official Demo Day, held here in Boston. Adam is the COO at Kensho, the Boston-based B2B FinTech startup and Sandbox alumni. As David Jegen, Sandbox Co-Founder and Partner at F-Prime Capital put it, “Kensho is one of the highest profile companies by name, but at the same time is one of the lowest profile companies by product.”

Under the hood, Kensho’s machine learning analytics platform generates concise answers to questions on macro economic trends, market changes, political events, etc., through historical and real-time analysis of relationships across millions of data points from world economic data to obscure time and value data, resulting in over 65 million question combinations by scanning over 90,000 customizable actions (CNBC). Kensho finds answers to questions such as,“How do the big banks trade the day after a presidential election?” through a graphical user interface. The startup’s Kensho Box product powers CNBC’s financial analysis content consumed by thousands of individual investors each day. Kensho partners with big banks and hedge funds, driving their investment strategies.

Adam joined Kensho Co-Founders Daniel Nadler and Peter Kruskall in 2013 as the fledgling startup was nose to keyboard in product development. Adam, former CIO at Credit Suisse, drastically shaped the trajectory and fit of the product to ultimately partner with Wall Street’s largest banks including Goldman Sachs, Merrill Lynch, and J.P. Morgan.

For some context on Kensho’s product evolution, let’s refer to CEO Daniel Nadler’s chat at MIT’s FinTech Conference back in 2015. Daniel shared illuminative details on the early challenges he faced in addressing a stiff market gap. “I assumed, naturally as people do, that if there is an oversight in some part of the market, Google must have figured it out. So I went to the west coast and I got a meeting with Google. I said look, I’m a scholar at the Fed, I’m not an entrepreneur. But it seems very odd that I’m in this air traffic control of information, and there’s nothing that’s organizing and structuring all of the disparate things that drive financial markets … Your mission is to organize all the world’s information, so why is this disorganized?”

Daniel convinced Google to back a venture that would harness advanced analytics technologies to create a viable solution. Daniel, Adam and team tackle one of the largest, most sticky problems in finance. Kensho’s business and product is built in the nuances of financial regulation. Daniel explains, “What people fail to appreciate with institutional finance is how deeply regulated the space is. It is not at all inviting for these little disruptive tech companies to come and eat up the largest market in the world, which would be the VC fantasy. A lot of the founding of Kensho involved spending hundreds of hours reading the Volcker Rule. This is quite literally the most regulated space on the planet, and in many respects these rules are anathema to the way engineers think.” The team’s deep understanding of these restrictions to innovation and implementation proved wildly important when entering the institutional finance space with a shiny new technology that actually integrated with existing workflows.

Born out of 5 years of development, setback, fundraising, hurdles, more hurdles and sleepless nights buried in Dodd Frank, Adam sheds light on Kensho’s story focusing on 4 key learnings from inside the high growth FinTech:

1. Be bold, fail spectacularly
2. Think about nonlinearity
3. Prepare for integration and adoption
4. Raise a lot of money

Here’s what Adam has to say:

Fawce and Adam have built durable, unique products for and within a transforming industry. Their viewpoints as veteran FinTech entrepreneurs reflect a keen understanding of the impact of technology on financial services and its potential to reshape the industry for consumers, investors, engineers, developers, and those left completely outside the system. There’s more to come from Kensho, Quantopian, and FinTech Sandbox. So, keep watching.