Proof Trading Progress Update: 5 YEARS!

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Proof Reading

11 min readJan 3, 2024

I cannot believe that it has been five years since we started Proof! What’s pretty cool is everything we wrote in that original announcement blog post is still true to this day. This has been an incredible, once-in-a-lifetime experience. I feel immensely fortunate to be a part of it, and I can’t imagine doing anything else. I wanted to take this opportunity to reflect on the journey so far — the things we’ve done well, the parts we did not anticipate would be so challenging, as well as a look to the future.

What has worked well:

Efficiency: I think our most impressive accomplishment is simply how much we have done with so little in building this business. We have a built world class institutional equities algorithmic trading platform, operate a broker-dealer in one of the most heavily regulated industries, and we are working with many of the largest, most sophisticated asset managers in the world. We have spent about $5M over the past five years, and we just completed a fundraise a couple weeks ago at a $60M valuation — that’s a pretty decent amount of enterprise value creation already. We have never had more than 7 employees at any given point (currently 6). We build and do basically everything ourselves — we all wear many hats, and we outsource almost nothing. I’ve written before about how we keep our team so lean and efficient (overdue for an update). It reminds me of the stories of Whatsapp and Instagram at their time of acquisition. We’re obviously not there yet in terms of scale, but we do seem to be on a good track, and I am so proud of how efficient we’ve been!
Recruiting/team: not to pat ourselves on the back too hard, but at every phase of this company so far, Allison and I have done an amazing job assembling the team. I am blown away by the caliber of folks we have managed to recruit over the years. I think it’s a testament to the draw of working at a place like Proof. We have a compelling mission and ample opportunity for every team member to grow and learn and contribute in a meaningful way. It’s a virtuous cycle: you need incredible talent to build a successful business in a hypercompetitive industry like ours, especially with a team as lean as ours, and the most talented folks want to work at places where they are empowered to make a significant contribution and not just be a cog in the machine.
Technology: credit to Prerak, Beau, and Han — they built us a powerful, nimble, and robust foundation on which to build and iterate our algos, and credit to Marcio and his team for picking up where they left and taking it to the next level. Our technology platform is undoubtedly one of our greatest strengths and differentiators.
Transparency/content: especially if you look over the past 5 years as a whole, we have done a wonderful job sticking to our commitment of full transparency, even when it was painful to do so. Best of all, I think it has really paid dividends! We have undoubtedly built relationships, won clients, and recruited talent as a direct result of publishing our papers and blogs. The last few months we have been slacking a bit in this department, myself admittedly more than anyone (it’s been busy!), but we do have a healthy pipeline of content in the works. Our commitment to transparency is just as strong as ever!
Allison: I say it a lot in our client pitches, but I don’t say it enough in my updates — Allison at our helm is the single thing that most makes Proof special. Without her, the best we could hope for is to maybe be the next Instinet or ITG — a tech forward new entrant that builds a better/newer/cheaper mousetrap to capture market share. But with Allison, the focus is not just becoming a successful business — it’s about maximizing our positive impact and being an example of the type of company we would like to see. She pushes us outside our comfort level to be radically transparent and genuinely good. She stops us from working on projects that might seem like reasonable business decisions but that wouldn’t advance our mission or help our clients. On the research side, her work is about understanding the bottlenecks that meaningfully limit trading performance and making an honest, scientific attempt to get better and better. It is not at all about capitalizing on hype or spinning stories with data that will sell well. What’s ironic is that Allison is probably one of the leading experts in AI/ML in this entire industry, and yet you won’t see a singly flashy buzzword on our website. Allison is brilliant, passionate, creative, ethical, principled — she makes us all so much better, and she gives us a chance to be something truly great.

Challenges:

Attrition, even in good times: I’ve mentioned before, 2022 was by far our most challenging year. The year started out great, and things seemed right on track for significant growth and progress. But then our top talent got poached, unexpectedly, which led to a near-death spiral. Literally our entire team — everyone beside Allison and myself — turned over that year. It was a blameless situation where everyone involved acted above board and reasonably. All the transitions and knowledge transfers were as much as we could have hoped. But it was still so brutal, and so difficult to overcome. We were still in a great position in terms of product and tech, but Allison and I had to devote all our time to staying afloat and keeping the lights on. In terms of sales, this period of high attrition probably set us back a full year — I mean, who is going to sign up to do new business with a startup that is in dire straits? It was when we were at our lowest that Marcio and Nila fortunately decided to join the team, and they rescued us. Since joining, they have taken their respective areas to new highs, and our team is honestly now the strongest its ever been, all thanks to them. Without Marcio and Nila, Proof would surely be dead by now (i.e. acquired).
Urgency/grow or die: As we learned in 2022, momentum is critically important for a small early-stage startup. People are the most important resource, and the way we have built this business so efficiently is by recruiting A+ talent to join us and to accept predominantly equity compensation in lieu of market salaries, as most tech startups do. At these early stages, the value of your company is largely based on potential and growth trajectory, so if either of these waver even slightly, it can have cascading effects, not just with investors but also with employees and clients.
Data/immediate feedback: in my previous jobs, I was spoiled for conclusive data. Both at RBC and at IEX, the problems we focused on were at the micro level: the sub-second trading dynamics. At these timeframes, the data is black-and-white and you and your clients get almost immediate feedback on whether a product is working well. At Proof, we leverage that micro-level expertise, but we focus most of our research cycles on the much more difficult (and potentially much more impactful) question of how best to trade at the multi-hour and multi-day level. We knew this would be much more challenging as the data would be much noisier, but I am not sure we fully appreciated how difficult it would be to sell our product given the murkiness. Prospective clients want to see data, rightfully so, and they have been conditioned to believe that brokers are in a position to provide it, full stop. But unlike most folks in this industry, we are unwilling to cherry pick the implausibly good metrics from the noise just to paint a tidy picture to make a sale. We are data-driven and committed to transparency, and we share every bit of data that passes our robustness checks, good or bad. But it is frustrating when time and again the most relevant and important metrics yield the same result: “too noisy; need more data.” On the bright side at least, we are optimistic that as we continue to grow, this problem will naturally shrink, but it has undeniably been a challenge.

Thoughts toward the future:

Proof is currently at an all-time high. There is so much going well right now: the team is amazing, the product is working great, and by every metric — volume, revenue, pipeline, valuation, etc. — our business is in the best place it has ever been by far.

In 2024, we absolutely need to keep our foot on the gas pedal. At an early stage startup like us, success is so fragile. On paper, we have done really well already, but if our growth falters or if we make one misstep, it can all disappear in an instant. The closer we get to achieving long-term viability, the more crushing it would be to fail, and not just for our own sake. At this point there are so many people that have made a bet on us to help us get to this point — employees, investors, clients — it would be devastating to let them all down. Even for an eternal optimist like myself, it is stressful building a new business from scratch. Way less stressful when things are going right, of course, but that pressure is still always with you. So right now we must stay vigilant and stay hungry. 2023 was our best year ever. 2024 will undoubtedly be make-or-break as well. We are fortunate to be starting off on the best foot possible, but there is a ton of hard work ahead. We have gotten here by being ourselves, building the type company we would want to work for, and building the type product we would want to use. None of that will change in 2024. Wish us luck!

Major updates from Q4 2023

By far our best quarter, including our first ever profitable month!
Successfully completed a fundraise bringing our total fundraising to ~$8M, most recently at a $60M post-money valuation.
Continued strong momentum on the sales front with 3 new clients going live, and several more imminently going live, along with several new clients expected to begin the onboarding process in January.
Continued work on our 4th algo: an into-the-close algo, along with accompanying quantitative research into closing auction volume prediction and impact minimization.
Built, tested, and deployed several major new algo features: min/max POV, relative limits, I would, as well as a configuration framework for client customizations.
Published a blog post on our 3rd algo: an aggressive liquidity seeker.

Goals from our previous update

Technology

Review and enhance our failover procedures around cloud, network, and market data failures.

(10/10) This review has been completed, and we deployed several operational enhancements in production.

Complete the transition from Credit Suisse to UBS as our second DMA provider (in addition to Barclays).

(9/10) Testing with UBS is in the final stages. It should be deployed in PROD this quarter.

Complete any outstanding EMS/OMS integrations for next wave of new clients.

(10/10) We successfully completed several new integrations this quarter (ie prop OMS’s, custom wheels/parameter mappings, etc.).

Product/Research

Deploy in production the functionality to allow clients to enter relative limits on orders based on a reference ETF or Index.

(10/10) Completed and deployed!

Publish our quant researcher training materials as a freely available course.

(2/10) We’re starting to be a broken record on this, but we stalled due to prioritizing other projects. In the meantime though, we had an idea for making these materials more engaging, and working on implementing it.

Build on our information leakage research and incorporate it into products.

(4/10) some groundwork was laid here, but nothing concrete yet.

Complete an initial model for closing volume prediction and accompanying whitepaper.

(5/10) The feature selection phase of the closing volume prediction model has gone well, which is typically the hardest part! However, there are some remaining challenges in converting the correlated features into improved predictions due to the levels of noise and outliers in market behavior.

Build, test, and deploy our 4th algo (into-the-Close) to Production.

(1/10) This is being held up by the quantitative research, but we expect it will be worth the wait.

Make significant progress on our basket trading initiative.

(2/10) We had a handful of productive client conversations on this topic, but we did not devote significant cycles to it. As we continue to progress through our product timeline, this project will become a higher priority.

Sales/Marketing

Go live with at least 3 new clients and begin the onboarding process with at least 2 new clients.

(10/10) We did it! We went live with 3 new clients in Q4 and have added 4 new clients to our “active onboarding” queue. We’re finally seeing the finish line of many of the longer onboarding cycles we began with clients earlier in 2023, and in the meantime, we have gotten very efficient in the process flow from our side. We should continue to see an increased pace of new clients coming live in the upcoming quarters, as we have a healthy pipeline of clients in various stages of onboarding now (some imminent!).

Continue implementing a more systematic business development strategy.

(5/10) There’s always continued work to be done on this front. We’ve developed a sound strategy for prospecting, have frequently been on the road for client meetings, and hit the conference circuit, but onboarding and focus on the client experience took top priority in Q4. As such some of our longer term projects, such as onboarding a CRM tool, pursuit of media/marketing strategies, and scoping out a potential product roadmap have taken a back seat. We hope to be back on track on this front next quarter.

Operations/Regulatory

Complete QSR integration with Apex

(10/10) We went live with our first QSR client! After a lot of stop and go and operational bumps along the way, QSR is finally live and we’re full steam ahead.

Obtain NY State WBE Certification for our broker-dealer subsidiary, Proof Services LLC, and explore WBE certification from other widely recognized organizations as well.

(5/10) We had a couple rounds of back and forth with the certification department, but we have not been certified yet. Hopefully this quarter! For now, we’re on-hold with getting certified with other organizations until we find there’s a need for additional certification. In the meantime, we will shift our focus to getting on MWBE broker lists.

Goals for the next 3 months