The stock market is America’s thermometer for the country’s economic health and future prosperity. With only 10% of Americans owning over 80% of outstanding stock, there isn’t much room to find outsized returns in the public markets. More investors are looking to put their money into higher-risk investments to make their fortune, but few can do so in an intelligent manner that isn’t time-consuming. Thomas Stewart, Allen Calderwood and Som Mohapatra want to provide access to these high-risk assets through Quantbase. Quantbase is “a suite of automated portfolios that make high-risk investing effortless.” The New York City-based startup has raised $500K from Witz Ventures, Dorm Room Fund, Trolley Ventures, Soleil Capitale, YC alumni, and Thirdline Capital head Larry Eiben and others.
Christian Blackwell and Austin Hankwitz, co-founders of Witz Ventures, state, “Quantbase is the only startup we’ve come across that’s properly approaching high-risk investing through a lens of normalization. Som and Thomas have strong quantitative backgrounds and understand that the younger generation’s demand for riskier asset exposure must be met with a supply of comprehensive, automated portfolio strategies.”
Most retail day traders spend hours poring over 10-Ks, financial news reports, shareholder letters, and other relevant information to find the best stocks to buy low and sell high. It’s even more difficult for those searching for massive returns in alternative, high-risk asset classes like cryptocurrencies and predictive markets. Traditional institutional firms do not provide access to exotic financial instruments due to a lack of sophistication in their offerings or their preference for more stable, lower-risk investments. In addition to high-risk investing being time-consuming and non-accessible to most, facilitating and managing these types of investments from purchase to liquidation is extremely challenging for even the savviest, battle-hardened investors. There are dedicated full-time teams at private quantitative funds which focus solely on portfolio and tax management for these complicated investments. Despite these challenges, the growing interest and investment in high-risk assets indicate a market with unmet needs.
Retail trading is a massive market within the investment industry. The overall U.S. stock market is worth $53 trillion. Retail trading makes up roughly 25% of the trade volume. Assuming the percentage of the trade volume is the same as the share of the total value of capital, there’s roughly $13.9 trillion at stake within retail trading alone. If we consider only the share of Americans invested in high-risk asset classes like crypto as a proxy, then according to Bloomberg, the high-risk automated investing market that Quantbase is chasing after is roughly $2.1 trillion. A sizeable portion of these high-risk investors is middle-aged knowledge workers who traditionally invest in reliable, time-tested index funds that track the overall market’s performance, such as the S&P 500. Investors in this demographic and financial background are itching for a product that can beat the S&P 500 index fund returns with minimal time commitment.
Mohapatra says, “Is it crazy to think that passive indexing via SPY or QQQ index funds, which became popular because of its low fee performance (less than 20% of active managers have beaten passive allocations) will lead to lower excess returns in the next 2-3 decades? At Quantbase, here’s our perspective. There are some institutions that think yes, it is crazy and many will move even more towards passive investing, leading to the death of mutual/hedge funds. Others think that no, it’s not crazy, and many are going to stay where they are with actively managed funds. From the consumer side, retail investors that think yes, it is crazy will continue living with S&P index funds. However, those that think no, it’s not must then become personal money managers themselves – Quantbase is an answer at scale for this problem.”
Quantbase provides its investors to put their money into alternative exchange traded funds (ETFs). Investors can select from various portfolios based on their risk tolerance and minimum capital investment. Once chosen, Quantbase automates connecting to brokerages, executing trades, portfolio rebalancing, and tax management. Stewart and Mohapatra built Quantbase centered on establishing trust with their users. Financial products require strong consistency over availability, as much as having reliability is desired in backend systems for this particular use case. Without trust, users could churn from unforeseen bugs at any stage of the investment process. Fortunately, Stewart and Mohapatra combine to make a strong team steeped in technical expertise and stellar communication skills to deliver a best-in-class high-risk investment firm grounded in trust from its users.
Stewart brings to the Quantbase table his experience as a serial entrepreneur with multiple prior exits. He recently graduated from the University of Virginia with degrees in Mathematics and Economics. Mohapatra has amassed a track record as a quant trader who manages a smaller fund with a few million assets under management. During his third year at UVA studying Economics and Computer Science, he decided he had better things to do than sticking around for school after meeting Stewart. He dropped out to pursue Quantbase with him. Calderwood rounds out the team as a graduate of Virginia Commonwealth University, with previous experience as a senior software engineer at Google. At the core of their partnership, lies conviction in doing what’s best for their users, even when the data isn’t there to prove it. Together, they’ll democratize access to high-risk assets for all retail traders in the U.S.