Weekly Briefing No. 59 | Can Crowdsourcing + Data = Alpha?

2016’s last “regular” edition features lots of goodies for you to read by your tree, menorah, kinara or Festivus pole. Here’s what’s in store:

  • The FR’s exclusive 1-on-1 with Quantopian’s John Fawcett
  • Financial services: Look out for Snap, Uber, AirBnb, etc.
  • ApplePie Capital secures fresh funds two ways
  • A new survey of digital wealth management, RBS creepiness, contactless payments, Overstock makes blockchain history
  • Company of note: Bison
  • Hacking of note: The Great Maple Syrup Heist of Quebec


In anticipation of the upcoming holidays, we will be publishing special editions over the next two weeks. One will be our fintech holiday homework guide. The other will be our 2017 predictions list.

IN DEPTH

Can crowdsourcing + data = alpha?

“The more I started to frame the challenge of uncovering more quality ideas, the more I realized that using the internet to crowdsource was the best possible approach.” That key insight propelled John Fawcett to start Quantopian, a Boston-based investment platform that has harnessed the power of crowdsourcing and data to build a community of 100,000+ algorithm creators.

Fresh off a $25 million Series C led by Andreessen Horowitz, Quantopian is now poised to leverage its community of quants into an investment fund that is being built by veterans from a mix of finance and tech firms including Millennium Partners, Fidelity, Thomson Reuters, Hubspot and Tamale Software (Fawcett’s former start-up that was acquired by Advent Software in 2008). In addition to Andreessen and a slate of other premier venture capital firms, Quantopian also has the backing of Wall Street legend Steve Cohen and his firm Point72 for its audacious plans. The FR’s Gregg Schoenberg recently sat down with Fawcett to learn more about his vision for Quantopian. Fawcett’s views on the future of stock picking, privacy issues associated with alternative data sets, and why leading quant funds like Renaissance Technologies, Two Sigma and WorldQuant should fear disruption were also covered in their wide-ranging discussion.

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Fintechs: Watch the WASSUPPs.

With the exception of Amazon, our guess is that the so-called FANGS (Facebook, Amazon, Netflix and Google) will never view financial services as primary. Sure, they’ll keep hoovering up data on people and use that information to build a widening array of products, some of which will involve financial services. But these companies have their hands full with lots of other big things beyond finance. Moreover, self-driving cars, digital assistants, virtual reality devices and open data center projects sound a lot more exciting than 401(k) plans. But watch out for the new crop of tech powerhouses we’ve nicknamed the WASSUPPs (WeWork, AirBnb, Snap, Slack, Uber, Pinterest and Palantir). Several names in the group hope to go public next year, and in some ways they look smarter than the FANGs (See Snap’s rollout of its spectacles vs. Google glass) because they have learned from the FANGs’ mistakes. Perhaps more importantly, and as their bankers know, they are looking to broaden their business models to infuse more stability and growth. Could those efforts involve standalone fintech initiatives or partnerships? It’s tough to say, but it’s time to at least say hello to the possibilities, or better yet, WASSUPP?

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ApplePie Capital à la Mode.

ApplePie Capital (a former Company of Note) has stood out as a name to watch within the small business marketplace lending sector. That’s because the firm is nicely situated in a competitive environment where the only platforms that can hope to thrive are specialty participants with an origination edge or those with brawn. The San Francisco-based company, whose sole focus is helping established or would-be franchise-owning entrepreneurs secure financing, has been building steady momentum within its niche over the last few years. Now, on the back of its newly announced $180 million purchase agreement with TowerBrook Capital Partners and $16.5 million of fresh equity capital (via QED Investors and Fifth Third Capital), the company is poised to feast. “We believe there's a tremendous opportunity to transform franchise finance, and with this capital we intend to do just that,” CEO and co-founder Denise Thomas told us.

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IN BRIEF

Financial advisors face digital future. Kudos to Heidrick & Struggles and the CFP Board for their new study on the future of digital financial planning. Rather than produce a biased survey suitable to their own business objectives, they instead chose to lay out (fairly) four potential scenarios: 1) Everyone Goes Digital (self explanatory); 2) Judgment Day, wherein AI takes over; 3) Rise of the Humans, in which unforeseen market events whiplash the robos; and 4) Back to the Future, a scary scenario in which rampant cyberattacks turn consumers away from human-less providers. The near-even results of the survey show that advisors have a lot to think about and shouldn’t procrastinate given the fast pace of innovation taking place throughout the wealth management sector. This survey is a useful catalyst to get these advisors thinking and talking.

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Is RBS doing MI6’s bidding? In an effort to look “techy,” RBS has been strapping "mind-reading" sensors to the heads of job-seeking university students. These devices purport to assess candidate quality and fit, but we don’t buy it. Unless RBS is doing this at the behest of MI6 in a search for the next generation of young spies to fight terrorists, we think the bank is setting a dangerous precedent for judging applicants based on a still nascent technology. After all, polygraph tests have been around since 1921 and their efficacy is still in question. That’s why their use is widely regulated (and still hotly debated). AI technologies may be far more sophisticated, but they haven’t been around very long. Should minors be subjected to these experiments disguised as a fun activity?

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Do contactless payments lead to wanton irresponsibility? Credit score bureaus have harped on the danger of overspending in contactless payments environments. But according to UK digital banking consultant Duena Blomstrom, banks behind the cards can mitigate the risks by providing more immediate and relevant spending information to card users. That’s a key point to keep in mind now that Amazon Go, a new checkout-free convenience store, is about to open in Seattle. Assuming it’s a hit (a good bet in our view), contactless payments should get a big boost in the US.

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Overstock makes blockchain history. In 1906, Sears Roebuck & Co. went public, raising $40 million courtesy of Goldman Sachs. 110 years later, another retailer, Overstock, is breaking new ground with its $10.9 million Blockchain-Preferred share hybrid offering. The blockchain portion of the offering  — 126,565 shares to be exact — will trade on Overstock’s alternative trading platform, tØ, under the symbol OSTKP.

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COMPANY OF NOTE: Bison.

The last time we checked, there were no bison roaming anywhere near this start-up’s Boston waterfront office. Still, we like this unusually named company that brings much needed transparency to the private equity and venture capital markets through its Cobalt LP and GP products. The former helps LPs in manager selection, portfolio construction and reporting, while the latter enables GPs to look at their funds from the vantage point of an LP. A Fintech Sandbox company that is backed by private equity firm Hamilton Lane, Bison boasts a database that covers $4.2 trillion of capital and over 5,100 funds, according to the company’s CEO and co-founder, Rasmus Goksor.

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CAREER & INSIGHTS

Comings and goings: Brad Wiskirchen, CEO of Kount, has been appointed to a high-level IMF advisory group to study the economic and regulatory implications brought about by fintech. Previously, Wiskirchen was chairman of the Salt Lake City division of the San Francisco Federal Reserve Bank.

Wisdom: If you are intrigued by the recent Yahoo hack, the DNC/RNC hacks and the endless reports about credit card and bank information thefts, you will be fascinated by the Great Maple Syrup Heist of Quebec. The province is known as the Saudi Arabia of maple syrup because it controls 72% of the world’s supply of a goo that sells for about $1,300 per barrel. Sounds like a sweet target to us.

Read more.

QUOTE OF THE WEEK

"All who drink of this remedy recover in a short time, except those whom it does not help, who all die. Therefore, it is obvious that it fails only in incurable cases."

~ Claudius Galenus, a prominent second century physician in the Roman Empire and legendary confirmation bias poster boy