Speaking with Swiss-born entrepreneur Daniel Baeriswyl, and CEO of Magic Carpet, you get a glimpse into the future of finance, as we discuss how AI promises to soon compete against human quants – making better investment decisions, much faster. Magic Carpet is a deep learning innovator, developing cutting-edge AI to calculate the best investment strategies. Ultimately, if successful, this leads to fully automated hedge funds and automated investment banking. Daniel believes a break-through in AI will happen soon, and simultaneously bring new - to financial markets, where algorithms currently fail.
It is certainly a very exciting time to be developing new AI. The task for Magic Carpet is research heavy and involving a team of 3 PhD scientists in physics, bio-engineering and computational neuroscience – collaborating with hedge funds and testing the model in the market. They currently offer investors a new SaaS product; automated cryptocurrency market predictions. In March 2020 they will launch their own asset management entity, where investors can allocate funds into their AI driven investment solutions.
Magic Carpet hopes to do for investors what Google’s Deep Mind has done with Alpha Go; developing a “much higher generalisation capability”. They hope to generalise much more effectively on the state of the market, by analysing vast quantities of data. AI can deploy capital dispassionately, and identify opportunities for investment returns on the back of Deep Learning. The product is an independent predictive analytics tool for the finance industry – a new kind of investment technology that can deliver superior returns with uncorrelated strategies. Magic Carpet are able to command a SaaS fee and a percentage of the investment upside for access to the technology.
Daniel explains how algorithms currently are not generalised enough – and can therefore overreact to events, making imperfect decisions based on man-made rules. In future, the rules will be up to the AI. ‘Deep Learning’ means that the technology (the investor) has an increasingly competent generalisation capability.
“We believe that tech will lead the market, as it is science orientated.” The uptake of technologies like this, if delivering higher returns, is logically inevitable. A hedge fund can attract many new clients and manage far more capital if they can show that they have an unfair advantage/edge on the market – such as having best-in-class predictive technology.
Successful Deep Tech innovations allow you to ‘bring a gun to a knife fight’, but these kinds of breakthroughs don’t occur overnight. Magic Carpet’s start-up story is fascinating. Daniel’s team of scientists invested 2 years of research just to consider how best to pursue the opportunity. In order to do this, you need patience, committed people, and significant funding to support the learning.
Daniel spent half a year working as an investment banker with UBS in Switzerland – liking the business of investing is, but recognising the future is in fully autonomous systems; many bankers will soon enough be made redundant.
There is of course a race on to deliver on the promise of a financial AI breakthrough, and potentially very large rewards for those that can achieve it. Private investors need to back teams like Daniel’s from the outset, and they need to be a little adventurous too.
Magic Carpet currently has 19 separate investors to manage, and they have onboarded them all through the SeedLegals platform, over multiple rounds, as one of the platform’s first customers. Daniel recalls initial discussions with corporate lawyers on preparing the investment legals the conventional way, but he was put off by high quotations, so googled a more efficient way to do it.
“These [start-up] contracts are so generic and standardised. With SeedLegals, it is already there for you on the platform, and you still have the option to add in any custom terms if needed. It just works”.
Founders are walked through the process, creating their own legal documents and taking charge of the fundraising process as a result – not having to wait for an investor to initiate, and avoiding the ping-pong negotiations that can ensue when multiple parties all want to do it their way. Avoiding this, of course, saves time and money.
“The terms are all explained so clearly, so you learn the law by using it. I think it is actually important for a founder to master this. It would be a nightmare to manage this manually, but with a quick login, we can send our own documents out by email for investors to review, and they come back digitally signed - and it is done!”
There’s a strong desire to take ownership of the process among many founders, who are using the platform to drive deals home.
“I have always had the feeling the SeedLegals are trying to represent the founders’ best interests. It is actually very balanced.”
Magic Carpet have now used SeedLegals for an angel round and Instant investment to top up their round.More recently they used a SeedFAST to raise £125k, giving thrm a funding boost between rounds too; “that was very straight forward”, says Daniel, who evangelises on the efficiency of using the platform.
“I’ve been recommending it to other founders, because it saves time, money, and you learn about the law yourself.”
Is he concerned at all about the jobs that will go through automation, and tech platforms like Magic Carpet that take over white collar jobs? Not one bit. “People should be doing more interesting and useful things with their time.”