We have some exciting news to share -- we will soon begin offering you opportunities to license your IP to third-parties. Our success in finding member algorithms, and then funding those algorithms, has drawn the attention of other institutional investors. There are currently over 12 million backtests and 6 million algos on Quantopian. It’s this large number of varied strategies that these investors find extremely interesting. Our contest and recent challenge series have also attracted attention -- several firms have asked if we can engage our community directly to help them find great algorithms too.
The opportunities this opens up for community members are twofold. First, the number of users that are invited to license their algorithm (and the opportunity to earn royalties) will increase. Second, the types of algorithms being considered will be more varied. Our existing asset management platform has very specific goals, which drive the very specific constraints we place on algorithms. However, constraints such as net exposure, turnover, and sector holdings, will vary for other investors. As an example, one prospective party is looking for long-only algorithms. Algorithms that wouldn’t meet Quantopian’s criteria may find a place with these other investors.
So, how will this work? Currently, Quantopian uses an automated system to review the output of all backtests and contest entries in order to identify promising algorithms to license. When we find something interesting, we contact the author and work with them to ensure the algorithm is a good fit. If it is, we then offer a license agreement which includes the opportunity to earn royalties. This new arrangement with third-party investors would work very similarly. We would allow limited access to anonymous backtest results for them to analyze. If the results of an algorithm are appealing to the investor, and they would like to license the algorithm, we will facilitate a license agreement offer to the author. The compensation may be different from our Quantopian model and would be worked out at that time.
The anonymous backtest output we share with third-party investors only includes end-of-day holdings and metrics such as leverage, returns, etc. As in our own fund evaluation process, the algorithm code will remain protected and will never be sent to any third-party investors.
Our agreement with interested institutions will also constrain their usage of the data to the evaluation of algorithms and will require them to destroy the data upon conclusion of the analysis. Quantopian won’t share your intellectual property.
How can you receive an allocation? If you are already backtesting algorithms and entering the contest, keep doing what you’re doing. For those that haven’t -- jump in! Keep your eye on the forums and keep honing the skills you have been developing on Quantopian. Given that we’re speaking with institutional investors, we suggest you continue to work on ideas using a large number of assets within the QTU. In the future, we will run one-off challenges specifically designed for these outside investors, similar to the challenges we have already run. Stay tuned.
Finally, any agreements with third-party investors won't change who we are. Everything you love about Quantopian remains the same: we respect and protect the intellectual property you create here. We will continue to improve and expand the tools, data, and education available to the community. Select authors can earn royalties from their algorithms both directly from Quantopian, and soon, from a larger pool of interested investors.
This is a big step for the Quantopian community and the Quantopian crowd-sourcing model. The prospective clients we are speaking with have expressed their faith in our approach and in your ability to create valuable algorithms. We hope you share our excitement about this new opportunity, and that you feel the same pride we do in the validation of our shared efforts.
Thanks, and happy coding,