Hedge funds focus on alpha. Startups should concentrate on beta.
That was one of the memorable takeaways from a Twitter thread by Matt Ober, a general partner at Social Leverage,
Matt pointed out that while building products for the hedge fund industry, too many startups make the mistake of focusing on applications aimed at identifying above average returns.
Not only is that really hard, but in order to compete with established players like Bloomberg, new companies would do better to build products hedge funds need to do their job every day.
Matt argued that most startups underestimate the difficulty of selling to the hedge fund market. Very few hedge funds have the resources to buy large volumes of data products.
Also, the hedge fund market is volatile, with firms regularly failing.
“You want to be the product everyone has to have to do their day job. You have to have consumer transaction data and app data in this day and age to be a successful consumer or TMT investor otherwise you are investing blind.”
Matt said there are small number of companies that have managed to build products that hedge funds use regularly. They include: @AlphaSenseInc, @VisibleAlpha, @CanalystModels and @TegusHQ
Read the whole thread here: https://mobile.twitter.com/obermattj/status/1513512340687396871