New crypto-focused family office

Hey,

We’re a new family office with $500k in seed capital to get things going in crypto markets.

I’m the son of one of the investors and I put in 30k to hire a data scientist, infrastructure and trade engine engineers to lay the foundation for an HFT venture. The objective was to develop all the tooling that’ll allow us to research, experiment, tune and backtest models. We’ve now got all the plumbing in place and can develop models.

Our first model is a simple portfolio optimization model, where we sample 10-20k portfolio allocations and select the highest sharpe portfolio + rebalance on a specific timeframe.

It was a good model to get started, but our engines can be used for much more complex models. We’ve interviewed many quants, and one guy offered to develop a statistical arbitrage model. He wanted $24k for R&D. He’s porting the model from forex, and isn’t sure how it’ll perform in crypto markets. We had originally refused the offer.

Months later, he came back around and offered to port his model free of charge, but wants 20% of PnL. 10% would remain for my sub-venture and the leftover 70% would be for the family office.

Essentially he’s asking for 66% from my PnL as we originally had the whole 30% from the family office.

His main arguments are: experienced quants like him are expensive, and going with him is the best shot we have... as he also has contacts to raise new capital if things work well. But he also argued that if he can raise new accounts, it would give him additional leverage in the venture. The objective is to split away my sub-venture/tech from the family office as launch a quant firm somewhere where we can operate multiple accounts.

I’m a scalper and swing trader with 2 years experience in crypto markets. I exited nicely in the 2017 bull run and have dedicated my time and effort since then towards this venture. I have a background in economics and ran a web agency for nearly 10 years before that. I know how to run teams to build tech products. Quant products are a whole new level for me — and I’m not a quant myself. This is where I begin to suffer as everyone I hire is far more knowledgeable than I am. Given that I don’t have the experience in the space yet, I feel like this guy that wants 20% from PnL can take advantage.

What do you suggest for a team like ours? How can I better get familiarized with the norms of the industry without giving up on the family office? I need to keep growing with this venture, but I need to build relevant experience in order to speak at the same level as the people that join the team.

All advice is welcome.

Take a Look at the WSO Family Office Database Here

 

I'm a little confused in the structure of your business. You're a family office starting a quant fund and put $30k into it so far, leaving you with 470?

You started a quant fund and got investment from a family office?

"Out the garage is how you end up in charge It's how you end up in penthouses, end up in cars, it's how you Start off a curb servin', end up a boss"
 

No quant fund was setup yet. Think of this way: family office put up 500k for crypto markets. I put up my own 30k capital to develop tech that’ll service the family office’s capital. Goals for a quant fund are a distant plan.

 

I think i understand now. You work for a family office that has allocated $500k to crypto and you're in charge of the strategy?

20% P&L in perpetuity for a one-time port that he offered to do for $24k sounds like a horrible trade off in any circumstance.

If you've already used the office's capital to develop your tech i think it's going to be a hard sell to convince them to give it to you so you can start your own firm.

"Out the garage is how you end up in charge It's how you end up in penthouses, end up in cars, it's how you Start off a curb servin', end up a boss"
 

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