Case Study: Quantbase Cofounder Som Mohapatra Says To Bias Towards Action To Make Progress In Your Early-Stage Startup

There are times to act, and there are times to optimize. In the early stages of a company, it's better to bias towards action versus optimization.

Aug 15, 2022

Introduction:

Quantbase makes high-risk investing easy. We run a collection of automated portfolios for everything high-risk, with buttoned-up quant hedge fund strategies on one end and crypto indices on the other, peppered with mass appeal strategies like the Nancy Pelosi tracker and Inverse Cramer index. The long-term vision tackles the next $20-40T in the next wave of alternative and high-risk assets, as they go from niche assets with media coverage that far outclasses AUM, to accepted members of a well-hedged portfolio. We’re making high-risk not just definable, but standardized and investable across the board. The site is live at getquantbase.com.

Executive Summary:

Problem: How Do You Make A “Quant-y” Brand Attractive?

We have a smart, quant-y brand - it’s part of who we are as founders and the kinds of people we want to sell to. However, the challenge is how do you make that “quant-y” brand attract users who are interested in high-risk investing?
Market: Knowledge Workers Looking For High-Risk, High Rewards

We didn’t want to target young people (there seems to be a glut of companies doing this and fighting for a smaller wallet-share), but instead knowledge workers 30-45 with a sizable wallet, 80% of which is invested in slow and steady growth funds like the S&P. We decided on them because they’re overwhelmingly the ones we get the most attention from.
Solution: Emailing Every New User To Build Trust

The main blocker the Quantbase founders face is trust. They’re asking to hold people’s money and invest it for them, which is not an easy thing to do; therefore, they email every new user to have an interview to understand them and their investing preferences better.
Team: Having Data Is Nice, But Conviction Is Even Nicer

The conflicts that the Quantbase team has usually go down to a question of conviction vs. data. If one of them is high conviction enough, that beats data.
Takeaway: In The Early Stages, Default Towards Action, Not Optimization

The biggest lesson the Quantbase founders have learned is that as a startup, the founders have no clue how people or algorithms work enough to optimize anything they do. So default towards action vs. optimization.

Case Study: Quantbase

Quantbase cofounders Thomas Stewart (left) and Som Mohapatra (right).

Problem: How Do You Make A “Quant-y” Brand Attractive?

Tell me about a problem or set of problems that you’ve had to solve on your journey to product-market fit.

We’re pre-PMF, so solving these problems is our day-to-day. We came across a really interesting problem this past week. We have a smart, quant-y brand - it’s part of who we are as founders and the kinds of people we want to sell to - but the most engaging fund we have is the Nancy Pelosi tracker. It’s not very smart, it’s definitely not quant-y, but it works in terms of getting people to Quantbase and signing up. How do we reconcile this? We solved this by taking a step back and figuring out exactly what we mean by “high risk” investing and going back to what we did when Quantbase was idea-stage.

Figuring out what problems people have with investing, how they’re currently scratching that itch, and what a better solution would solve (without thinking about what that solution might even look like). We came up with something we’re pretty happy with (it’s a bit finance term-focused) — smart high risk investing is effectively investing at the same Sharpe as normal Vanguard investing, but with both the volatility and expected return dialed up - i.e., Vanguard = 10% return / 10% vol, Quantbase = 50% return / 50% vol. We are playing a different game from hedge funds and the institutional space, as well as other companies like Titan.

Tl;dr - the problem we’re solving is how to give a “quant” brand broad appeal.

Why were these problem(s) so critical to solve? What was it like personally struggling to overcome these challenges to achieving PMF?

In a nutshell, solving this problem was going back and checking our assumptions in the face of slowing growth post-launch. Are we slowing down because we’re not solving a problem or just because we’re not getting to the right people? An earnest look and talking to lots more users later, we realized we fell on the latter side - for the next few weeks, our focus is 90% on building out the distribution engine and 10% on fixing bugs.

Our main framework in terms of running Quantbase has been setting a north star metric (monthly ARR growth). We’re a fan of the idea that if we all know the one thing we’re looking to increase, we’re much more aligned. Now, the framework we’re using to identify customer pain points comes directly from Ries’ The Lean Startup. Specifically, I’m a fan of the Learn, Build, Measure, Learn process - once you’ve talked to enough users to get an understanding of the problem, build out a solution, put in trackers (UTM, Mixpanel/Amplitude), then see how users are interacting with the solution. And for larger changes that might signal a pivot, instead of fully building them out, we build out a method for us to track how useful it is. For example, instead of a page/component that does X, we include a link that says “incorporate X” and tracks the clicks to it. When someone clicks on it, we send an alert that this isn’t ready yet, but that we’ll let them know when it is.

Market: Knowledge Workers Looking For High-Risk, High Rewards

Let’s get deeper into the pain point or points you were trying to solve. Imagine I’m a customer thinking about using your product or service. How do you go about understanding my pain and creating a solution to address it?

The five questions we base our user interviews on:

How’d you find out about us? (so we know what channels get us the most engaged users)
How do you think about (high-risk) investing? (do they think of high-risk investing as just a naked gamble?)
What is your budget for high-risk investing? (how much of their budget is earmarked for risky growth, vs. slower “set and forget”)
What are you currently invested in? (gives us actual insight into their experience and budget, and we move into their “why” s with this question)
What kind of person do you think would like Quantbase the most? (if they like us, they’ll describe someone like themselves)

Assuming you’ve managed to address the pain points I face as a customer, what additional information did you discover in your journey to PMF that there’s a large market in need of a solution to the existing problem?

Even with an MVP-looking site, our activation rates are better than most other fintech companies in the industry. That tells us that people are excited and willing to take on a risk to try out our product. We also constantly measure activation rates, click through rates, and other metrics like how many people go through our funnel. If we’re finding that a specific fund launch work well with the above rates and organically - we supercharge that growth with paid ads and PR/partnerships.

We were initially convinced of the size of the market when we posted our value prop on social media (HackerNews and Reddit mainly) and went viral. We used this to source user interviews and waitlist commitments. We’ve since used these channels extensively to validate our assumptions.

How did you narrow your scope of what portion of the market you wanted to tackle first? Who did you decide would be your first beachhead customers and why?

We got a lot of early traction on Reddit and Twitter, so our narrowing happened based on the strength of our initial channels. We didn’t want to target young people (there seems to be a glut of companies doing this and fighting for a smaller wallet-share), but instead knowledge workers 30-45 with a sizable wallet, 80% of which is invested in slow and steady growth funds like the S&P. We decided on them because they’re overwhelmingly the ones we get the most attention from.

Before they knew about Quantbase - we talked to about 150 users and surveyed 1200 more to get insights on how they thought about investing by posting on Reddit and pretending it was a grad project. After we’d gotten users on Quantbase, we built an automated pipeline - if a user doesn’t do x action (finish onboarding, make an investment) a day after signing up, we sent an email automatically to ask them to schedule a chat with us, for a bit of a financial incentive.

Solution: Emailing Every New User To Build Trust

How did you build your solution to maximize its relevance with the customer and ensure product-market fit? If you haven't found PMF yet, what have you learned? What are the blockers for getting to PMF?

We haven’t found PMF yet. What we’ve learned is that investing services like ours are quite sticky. Retention is almost 100%, but it’s very, very hard to get people to commit a large amount of capital our way. The blocker is trust - we’re asking to hold people’s money and invest it for them. What is an “MVP” for a social media site didn't work for a fintech investing site. We also greatly expanded our growth channels to invigorate trust - we’re using Substack, Twitter, and Instagram as educational and research arms to teach people what quantitative investing is all about - and for the folks that know a bit more about the space, presenting some novel insights and statistics that we’ve found.

What are some of the things you did that “didn’t scale” to shape your solution today?

We are emailing every new user to have an interview. Keeping a list of international users (we’re US-only) so that when we do expand, we’ll reach out to them personally. There’s an element of caring about who your users are and where they come from that we’re still able to have at our size.

What did you learn to best engage with your customers? How did you build a tight feedback loop with your customers to rapidly improve your solution to their problems?

Asking them! The email to new users to set up a chat pipeline has been crazy good for us in terms of conversion. We’ve also incorporated a framework of focusing in more effort on what works. If channel A is starting to slightly work, we focus in our resources on A until we have a better idea of how well it works. This has manifested itself in us maintaining a pretty active Discord, because that’s what our user conversations have pushed us towards.Walk me through how you landed your first few customers as you were building your product or service.

The funds themselves generate enough interest for clicks, signups, and conversions, as well as word of mouth. I’m talking about the Pelosi and Cramer funds, yes, but also interesting quant-y ones like our Leveraged Algo-Trader and our Factor-based investing model.

Knowing that users have problems making high-risk investments - problems that revolve around the time it takes to find, evaluate, and manage it all - isn’t enough, as we needed to battle-test that the product we’d built out was solving those pain points accurately. We’ve gone through a few iterations - at first, we were focusing on the prosumers, but after talking to enough prosumers, building out the tools they wanted, and then not getting any actual increase in AUM, we did an early pivot towards focusing on the folks that also didn’t have the skills to make high-risk investments. People that knew that NFTs were an asset class gaining a lot of popularity, but without the adequate skills to know what to look for and where they didn’t join in. So we’re removing the barrier (this is something we’re still working on).

Team: Having Data Is Nice, But Conviction Is Even Nicer

If you have a cofounder, walk me through a time that you two had a conflict. What was it about? How did you handle the situation? What was the resolution, and how did it impact your working relationship with your cofounder?

Delineation of responsibilities is super hard. We have similar aspirations and skillsets, which means we can supercharge growth oftentimes by working together on a project or idea or problem, but we’re also very strong-willed cofounders, which means if we have differing opinions, it’s hard to reach consensus sometimes, but we default towards action. Our last conflict was about figuring out whether we ought to spend money on an expensive ad campaign without having enough of an idea of the audience to know how well it’d do with them. Conversations like this usually go down to a question of conviction vs. data. If one of us is high conviction enough, that beats data.

What key qualities did you look for in key early hires to increase your chances of discovering product-market fit, and how did you prioritize what types of hires you needed to make first?

Hire people that you’re afraid will build the company if you didn’t hire them.

If there was a potential employee of your startup reading this Case Study right now, how would you convince them that joining your team is the next best step in their career?

Quantbase is pretty sick. We want to work with people that have cool answers to these three questions:

Zooming out 60-70 years - what’s your ultimate life goal? (and then “why?” like 5-6 times after that)
How would you invest $100M in assets for somebody with the same exact risk preferences and terms as you? (So how would you invest your own money, but with a bit more nuance in terms of responsibility for others, and capturing some of the value in terms of profit, but not as much of the risk?)
Is Quantbase a fintech company or an investment firm?

Takeaway: In The Early Stages, Default Towards Action, Not Optimization

What are the key lessons have you learned so far from your journey to achieve product-market fit?

We haven’t gotten there yet, but the biggest lesson I’ve learned is that as a startup, you actually have no clue how people or algorithms work enough to optimize anything you do. So default towards action vs. optimization. I just did some quick math --> 1 * 1.01^41 > 1 * 1.5. Doing something that causes 1% growth 42 times results in a higher number than doing something once that causes 50% growth once. And honestly, 42 isn’t that big of a number.

Click Here for Quantbase’s Founder File:

Quantbase’s Founder File Description:

Our founder file describes the assumptions we are making about our business, that, if true, will allow us to achieve product-market fit and scale from there. These are assumptions, that, if untrue, spell bad news for Quantbase, to different degrees.

Quantbase's Founder File

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Colin Parsons, Founder of Groxos: Groxos uses AI to give any 10-person team the marketing power of a Fortune 500 company.

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