Looking for seed money but no idea on the how/what/who
Hey all,
Before diving into this I think it makes sense to at least give some context and background on me personally just so we're all on the same page. The general gist of what I am curious about from anyone with experience is the goal of getting seeded to start a small fund. The goal would be $2mm-$50mm. I'll get into why in a second.
As way of background, I am 34, C-suite exec (think VP of Corp Dev/Treasurer/CFO) at a mid-cap public company on the east coast. I have an MBA and CFA and have done pretty well for myself being outside of the 'high' comp / 'high end' NYC finance world. I started in a Fortune 50 and moved on up the corp ladder quite quickly. I am happy in what I do but not where I am company wise. We're a struggling company, PE backed and in knee deep of a turnaround situation.
Throughout that entire time I've traded my own account. Specifically, I've been trading since I was 16. I am obsessed with trading and have read every and any book on technical analysis and the market. I got serious on the topic in 2014 and started to actually hone in the strategy to the point of creating an algo and several scans.
The account was up 190% in 2017 and is currently up 30% YTD in 2018. I can get into as much detail as people need/want but for now let's say it's a L/S mid to large cap algo based on 4 technical analysis criteria that can, and are, used to find both L and S positions. I literally just flip the criteria for the TA pieces to find shorts. I trade both the underlying and 30-90 day vanilla call/puts as the primary piece of the strat. Win rate is 50%-60%. The account isn't a huge multi million dollar book. Think sub $250K. Nonetheless, I am happy with the results.
I know the strategy can be scaled up to a larger size. Without question the trades can take on additional size as both the underlying and a laddered options approach can be applied to the technical analysis. Trade allocation and risk management are just as important as the technical analysis pieces to me and the reason I haven't gone broke in the early years.
Playing devils advocate, I know 12 months is not enough of a track record. I get that completely and will keep trading this forever if I have to until I can start something. That is the end goal. I've been asked well why don't you just trade your own money and dump more money into it. Personally, I may do that soon. My wife and I are expecting our first baby soon so while I am laser focused on making this fund a reality I can't say I am in a position to dump more cash into it right now. In 6 months? Maybe. I know.....seems silly. Estate planning can do that to you I guess.
So, to the WSO Monkey brethren, what should I do? How can a nobody in the hedge fund world go out, convince anyone that I am not a jackass, that this track record is real (I obviously have the account statements and scans as backup) and raise $2mm - $50mm to start something. I legit know nothing about getting seed money, emerging manager platforms and the like. From what I've researched thus far, when seeded the back office, legal, accounting are all taken care of. So I am not worried about that part of it.
I thank any and all guidance and comments before hand.
Best,
Fellow Monkey
People aren't going to take you seriously if your alpha signals are purely technicals. Your track record isn't going to be your biggest issue. Maybe if you have good relationships or network/pitch well you could land some dumb HNW money but few prudent investors would invest in a pure technical analysis play.
Thanks for the response. The technicals are the starting point to scan for a universe to work with. From there it's a matter of personal selection based on the technical setup, fundamental story, options pricing and volume over specifics time frames.
What's the difference between this and any HFT or quant driven strategy trading on a multi month/quarter timeframe? They're using inefficiencies in the market on some level with technicals as the back drop to enter/exit, no?
Thanks again for the input and feedback.
-HFT firms mostly make money off the spread and by being a market maker. For the most part, they aren't exactly making speculative bets. I'm not an HFT guy though.
-Maybe I am incorrect but it sounds like your current setup is completely rules based? Doesn't sound like there is a statistical process involved. Rules based processes will pretty much always blow up in your face eventually.
-The basis of quantitative/systematic strategies is to use some method to forecast future returns/prices and then rank stocks by the forecasts to determine long and short portfolios. Forecasting methodology obviously varies strategy to strategy. These forecasting methodologies never rely purely on technical indicators as their usefulness is not robust without fitting against macroeconomics and fundamental factors.
Disclaimer: I do research for a quantitative market neutral global equity strategy so I don't know very much about options.
You can raise 1st loss capital and get 9:1 leverage pretty easily. 1st loss capital typically pays 50%...so you are essentially just hyper leveraged. If you have the confidence that you'll never lose 10%, then this is a good deal. If your strategy can't stand 10x leverage...then this is not a good deal.
Thanks. Can you elaborate on how it's done or thru who?
google for Topwater Capital
Why would you want first loss capital? I’m going to assume they stop you out if the trade goes wrong. So you give up half the profits and take the full loss? Which in an algo world anyone can be wrong.
Could you just add leverage thru options or Margin? The only advantage I see to first loss would be you can’t go negative.
if your trading strategy has small losses in the beginning (say, risk 0.2% to make 1%) then you can use the leverage offered by 1st loss capital to build up a capital cushion, and then you can scale up the risk.
if you don't have very high confidence that your strategy will make money, then why would an investor ever give you their money to invest? When you don't have a track record, either you trade your own money with no leverage an you grow slowly...or you trade your own money with leverage. No large investor will give you money without a track record. I would suggest you build your track record both in your trading account, as well as posting your trades and strategy publicly. Collective2.com and FundSeeder.com are examples of places where you can build a track record. Also, InteractiveBrokers.com has a platform for traders to build a track record that you can shop around, and they will help connect you with investors looking for up[ and coming managers. However, you need to run your strategy on their platform...nobody will believe what you say about your history...because that can always be faked. However, if you consistently make good market calls in real time on a public platform, that is really the only way to create a track record when you are not working for an institutional firm.
You will need to do tons of research and networking that you clearly have not done. Raising money is very competitive across asset classes and even experienced guys have challenges these days depending on the strategy. Rather consider doing this next to your actual profession. If lucky, some family / friends give you a bit of money. I would not run a "strategy" like this with their money though.
Thanks. I've done plenty so far which led here, and other places, and to my specific question on emerging manager platforms and other avenues outside of a pure fund; some of which have been mentioned in some responses. Raising capital is obviously difficult.
Any substantive reasons why you wouldn't pursue raising family/friend money or just not a fan of the minimal details offered in the thread so far and you wanted to add that in?
Fund economics don't make any sense for anything under 30M or so just FYI. Your returns get eaten alive by compliance...
I would second this. Setting up a fund managing institutional money requires a very large fixed cost base that normally needs 30M or even 50M to make economic sense. Otherwise, for at least the first 12 months, expenses will go out of your own pocket. Hopefully you make some ridiculous return from then on to not burn whatever that is left in your savings. Another challenge in raising institutional money is track record, at least a few years or preferably throughout a cycle to assess your strategy.
With the size you're thinking, only makes sense to raise through friends / family or private HNW individuals. Btw your strategy sounds a lot more technical analysis heavy than systematic or quant trading. Plus, you're exercising your judgement in selecting the final securities to invest in, which kind of defeats the systematic framework in place. More like quantamental to me than anything else.
Not to mention his strategy likely won't scale. Managing 30m is totally different than 6 figures.
Lol just no, stop.
Good thread, good comments. I looked at starting a fund - your returns will be eaten alive if you are sub $10m. Someone mentioned sub $30m even, I think at 10 you should be alright if you carry a lot of the weight yourself in terms of back office, legal shit etc... Regardless - I have given up this idea and now just trade on my PA.
Thanks all.
So, what's the general consensus then on prop shops as the starting point instead of going all in on trying to start a fund?
There are a couple places that will give you a sit and a bit of cash - if you lose money you'll be out fast. They tend to come to campus and try to recruit, they churn through people like crazy and I wouldn't recommend giving up my job for this...
Depends on the shop you approach. I know a few and they are pretty hard to get in with unless you have something really promising and scalable.
Still interested in starting a fund?
Seed funding (Originally Posted: 07/30/2016)
I own an IT consulting firm with 20+ year experience in the field and arguably making decent income.40 years old, Based in Southern California.
As you can see I do not fit into the typical profile of a Silicon Valley startup founder.
I have sponsored a project and prototype that has major potential to disrupt enterprise applications market and a scalable and strategic business model. This is an unrelated and independent initiative from our existing consulting business.
Having said above, What are my odds of getting seed funding based on % of equity?
Your odds depend on...a lot. It's certainly good that you are highly experienced in your industry. So there's that. But it's basically impossible for anyone to make a guess as to your chances of getting seed funding without more detail.
If you want a couple meaningless statistics, according to https://www.entrepreneur.com/article/230011, "...0.91 percent of startups are funded by angel investors...0.05 percent are funded by VCs...57 percent of startups are funded by personal loans and credit...38 percent receive funding from family and friends."
Its all about the audience. You only have a chance if you are pitching to the right crowd.
Your background, while helpful, will have little bearing on your ability to attract funding, outside of giving you some valid tech credentials. Any outside investors will want to know that you are 100% committed to the startup and not your consulting business so it may actually be a handicap. VCs and angels will insist that you are full time, if they are going to invest.
Aut assumenda reiciendis possimus dolores et laboriosam. Et in sit est error enim asperiores aut quia. Iure nostrum vitae a ut aliquid vero accusantium officiis. Aut tenetur ipsam iusto quia aspernatur. At hic saepe quia et.
Accusantium facilis culpa dolorum voluptates ea. Quaerat omnis aut ad mollitia nesciunt autem. Nulla pariatur minus mollitia repellendus.
Impedit dolore quia voluptatem enim sed. Ut qui ducimus tenetur ut rerum amet voluptatem. Sequi sapiente quibusdam amet rem saepe voluptates. Officiis eligendi molestiae non placeat consequuntur. Dolore assumenda culpa beatae porro nobis rerum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Aut qui est aliquid. Corrupti consequatur dolore dicta qui. Non aliquid numquam dolor quis et provident.