StrategoMania: Lessons from a Failed Startup
What I learned from building an algorithmic-trading platform: a narrow market, an oversized MVP, and trying to build and fundraise without a co-founder.
Originally published in Russian on Facebook on April 19, 2015. Translated into English for this archive. The figures and observations below reflect the original post, not the market today.
Lately, I have had to explain StrategoMania.com quite often. I decided to write a short post for people who do not know what it was or how it ended. At the end, I have included the main lessons I took from it.
The project
The idea was a platform for individual investors. Professionals trading systematically on what were then the RTS and MICEX exchanges would meet beginners who had money to invest but had not developed their own strategies. The Western equivalent was Collective2.
The focus was specifically on systematic trading. We assumed that professionals had mechanical trading systems, or trading robots: software that opened and closed positions using predefined, statistically supported algorithms.
StrategoMania was intended to provide a safe place for these two groups to interact. Professionals would connect through an API and send copies of their trades to the platform, building a trading history that could not be falsified. Once they had a track record, they could make it public and offer a paid subscription.
When a professional’s algorithm generated a buy or sell order, it would send the instruction both to the exchange and, through StrategoMania’s API, to their subscribers. Subscribers would need their own trading robot capable of receiving those instructions and executing trades.
We planned to take a percentage of subscription payments. Professionals would set their own subscription prices.
What happened next
We started building an MVP ourselves to test the model, while also looking for investment. I managed to speak with several investors, including Life.SREDA, which had funded a similar project at the time, and industry professionals developing trading software for Western markets.
Those meetings were useful. They helped me understand the specifics of the Russian market much better.
In the end, the project closed just short of finishing the MVP. We had run out of both money and energy.
What I learned
People often ask what I took from the project and why it did not succeed. Success stories are interesting, but unsuccessful ones are no less useful. As Tolstoy wrote:
All happy families are alike; each unhappy family is unhappy in its own way.
Perhaps failed startups attract the same interest: we want to understand what made this particular family unhappy.
1. The market was too narrow
It was a very niche market, without a realistic opportunity to scale. At the time, around 90,000 people in Russia traded on the stock exchange. Of those, only about 10,000 traded, or tried to trade, systematically: using a deliberate, statistically supported strategy.
How many of those 10,000 wanted to look for strategies or pay for them? Our potential audience was tiny, and that did not interest any of the investors.
2. Financial literacy was low, or the market was too early
Call it low financial literacy, a misunderstanding of the market, or an early market.
When advertisements in the metro promised 150% monthly returns on Forex, and Mavrodi promised 40% with almost no risk, our figure of 12% per quarter for the best professionals looked unimpressive by comparison.
3. The MVP was too big
The MVP was large and complicated, and the idea we wanted to test was not defined clearly enough.
Looking back, I can see how we could have simplified it and built an MVP faster and more cheaply.
4. I did not have a co-founder
This probably should have been the first point.
It was almost impossible to develop the project into a product and raise investment at the same time. I could do one or the other. Many investors wanted to see traction, or at least a working MVP with real users, before they were willing to talk.
After months of development, my belief in the project also began to weaken. As Moreynis rightly points out, a co-founder can be the counterweight when you are exhausted and no longer believe in what you are building. That matters a lot.
These are the main conclusions I have been able to make with some distance. If anyone wants to build a similar project in Russia, I am happy to share more of the details.
Good luck. Do not be afraid: mistakes are inevitable, but you can make fewer of them. Just start.