An early practitioner of data science in the hedge fund world, Jaffray Woodriff has become a vital presence in both the emergence of the angel investment sector and in the promotion of Charlottesville’s startup and entrepreneurial ecosystem.
Jaffray founded Quantitative Investment Management (QIM) in early 2001. The company trades in futures contracts and stocks. Its 34 employees just off the Downtown Mall are able to manage an asset base of $2.5 billion through a data science approach to investing: its sophisticated predictive modelling techniques systematically direct all investments. The net annualized return of their hedge fund is 21% over the past 8 years.
A self-taught computer scientist, Jaffray has worked diligently on honing his predictive modelling skills, and data science remains at the heart of QIM. These core competencies factor into many of his aspirations for Charlottesville and beyond. He has been a major philanthropist for University of Virginia’s Data Science Institute. In addition, Jaffray’s success has also positioned him as an active angel investor, funding 24 early-stage Charlottesville startups.
I noticed in the early 90’s that the level of sophistication for managing money with predictive analysis was underwhelming. It was also clear to me as an undergrad in an Economics class that the Efficient Market Hypothesis was clearly wrong, and that I had a real shot at being rewarded for beating the market. Given that I was already particularly engaged in using data to solve problems, I was eager to see if my skills were applicable to financial markets.
Really taking the leap to start QIM came down to finding the right co-founders. I needed talented teammates, whom I found in Michael Geismar and Greyson Williams. Both are UVA grads and luckily they were excited to launch a startup in Charlottesville.
It also came down to mental preparedness. I had to be resolute in my commitment to deal with the complicated inter-personal and regulatory hurdles of managing other people’s money on the international stage. This has been more difficult than it sounds.
Building an organization
Since we have grown carefully and are situated in such a talent-rich area, we can retain a collegial atmosphere and a flat hierarchy. An excellent bonus policy (especially for Charlottesville) also helps us attract and retain great people. Charlottesville offers a lot of opportunities for low key and spontaneous relationship building. Our proximity to the excellent social density of the Downtown Mall has been perfect in this regard.
We mostly recruited from our network of friends. Fabulous people. We have brought on board 38 employees since 2003 and 34 remain. Charlottesville is excellent for recruiting, especially among those who already know the area. It also helps that, since our business model scales so well, our hiring needs over the years have been fairly modest. I believe we had 10 people when we were managing 1% of what we manage now.
The entrepreneurial spirit
Paul Graham and many others write about persistence and character. I concur. I actually have a lot of opinions on founder characteristics, rather than a specific formula. Here are three:
A) Possessing an honest feedback loop mindset.
C) Great intuition — especially evaluating people.
It’s important to think of hard times less as setbacks and more as bumps, curves, and challenges from which to learn. People want to know that, like the people you’re backing, you have grit and have thundered through the tough times.
I spent the decade of the nineties failing to gain traction with my own startups managing money. My “valley of despair” (common startup-speak for the hard times) was basically ten years long, from when I graduated from UVA in 1991 and when we launched QIM in 2001. However, the experiences and perspectives that I gained from those struggles set the stage for everything coming together with QIM.
Prior to creating QIM we were trading well with our own capital and were very reluctant to entertain the notion of taking on employees or starting an actual company. Once we felt fairly confident this success would translate to a much larger asset base, we became more confident taking on external investors. I wasn’t terribly concerned about the possibility of failure, I was self-assured enough to know that my persistence would eventually bear fruit.
In managing capital, returns are an excellent reflection of your success. We always have the ability to see whether we are on track by looking at the numbers. Probably around 2004 or 2005, we realized that very busy people were flying in from various parts of the world to meet with us. Quite often they invested. I think that’s when we started to realize that QIM was becoming a success.
The net annualized return of our Quantitative Tactical Aggressive Fund is 21% over 8 years, with very little correlation to other investments, including the stock market. My role as a very active local angel investor is also relevant; with the guidance and support of our family office, the Felton Group, we have made significant early investments in 24 Charlottesville startups over the past 8 years, including Apex Clean Energy, PsiKick, and VividCortex.
I hope the positive impacts of my career are only beginning to show themselves. Data science has broad applications, and if it has limits, we are not yet close to even seeing them. I have always wanted to take my understanding and the skills I have honed over the past 25 years in money management and apply them more broadly. My fervor for studying and investing in startups, with a focus on Charlottesville’s innovation ecosystem, is a direct product of my career-long immersion in data science.
Deciding to invest
Intuition is important. So is having a team you trust. Between my colleagues at QIM and those in our family office, the Felton Group, I am surrounded by people whose judgement and willingness to challenge ideas are top notch. We size up character, looking for things such as honesty, grit, and a sort of feedback loop that relates to being able to take criticism from others and oneself, and build on that. The ideas matter as well. We invest in a wide range of industries, but it is quite tech-heavy, according to our areas of relative domain expertise.
I don’t follow any one method or school of thought, per se. I am self-taught and have really gone my own way. David Vogel (Jupiter, FL, Voloridge Investment Management) is a good friend who has taken his data science expertise and very successfully applied it to investing. (In full disclosure, we have a significant stake in his company.)
The Charlottesville Entrepreneur
More than ever before, there is a tremendous amount of energy and cooperation around building Charlottesville into an area that is exciting and nurturing to entrepreneurs. The Downtown Mall is a treasure, and I, along with Tim Miano and others, am actively working to build—in the figurative and literal senses—an Innovation District that will revolutionize the way great ideas are fostered in Charlottesville. UVa is definitely on the right track in terms of integrating with the community and establishing strong local networks to keep talent here. We are finally have regular focused dialogues that bring together founders, UVa, the City, the County, funders, CEOs, and non-profits all around the common cause of supporting every facet of innovation—it’s having an unprecedented impact and it’s truly inspiring!
The Future of Charlottesville
Staying in or moving to Charlottesville has not generally been a compelling option for aspiring founders and talented young employees. We are going to change that in a very big way. I want to see Charlottesville reach its full potential as a national beacon of innovation. I would like the Innovation District to thrive and become a popular destination for students and entrepreneurs at all levels, so that we can help inspire the next generation of startup founders and help talent remain in Charlottesville. It is a tremendous advantage for our Innovation District to be located in such an amazing town with such a large and prestigious university. The ratio of students to townspeople is one of the highest in the country, and this can be a major competitive advantage if we play our cards well.
I’ve been glad to hear UVa’s top brass emphasizing its growth as a research institution and to witness a genuine shift in viewing UVa as a partner with the local community. We are quickly moving from good to great, and for me, it’s never been more exciting!