This Ex-Quant Had to Quit Wall Street to Build a 24/7 Stock Exchange | QFEX, Annanay Kapila

1. 0:00 – 1:07

   Intro

   1. AKAnnanay Kapila0:00

      I've worked as a quant in high-frequency trading, $10 to $100 billion a day, just, you know, the strategies that I was responsible for, $10 billion a day is roughly the GDP of France. I was earning big fat paychecks as well, but I felt that I was wasting my life. High-frequency trading is all about exploiting market inefficiencies. I saw how much money we were making due to simple structural design flaws in existing markets. People in trading just wanna make money so they can earn big bonuses, right? I'm Anan, I'm founder and CEO of QFEX. I used to work in the quant finance sector before I realized a lot of financial markets infrastructure is broken, and now we're building the next 24/7 global stock exchange, which is going to revolutionize, uh, trading. We had two major funds. One was General Catalyst, one was Nexus Venture Partners, round closed at a $95 million valuation. We weren't making any revenues. We were pre-revenue, raised a $95 million valuation. The early point in raising venture money is if you can be massive, right? Like, truly massive. Then a VC will find it very hard to say no. [instrumental music]

2. 1:07 – 1:50

   Money is Killing the Best Talent on This Planet

   1. AKAnnanay Kapila1:07

      There's certainly a lot of people in the US, I feel a lot of them couldn't be kinda pursuing an entrepreneurial path because their future is so set, and for me, it was really obvious to see, given my background. You know, obviously, I was born in India, and then my parents came to the UK. You know, they left behind a lot in India to kinda start over in the UK. I studied maths at university. I started thinking about what I wanted to do with my life towards the end of my time at Cambridge. We weren't very wealthy growing up, and, uh, a job in quantitative finance, quant trading, it just paid a lot of money. I had an option to do a PhD as well and something more impactful, but, like, the, the money was too good to pass up. And after I left Cambridge in 2020, I worked at a Dutch high-frequency trading firm called Flow Traders for a year, and then I got headhunted to an American firm called Tower Research Capital, where I worked for almost three years. When you work as a trader, as a quant,

3. 1:50 – 3:14

   How HFT Really Makes Money

   1. AKAnnanay Kapila1:50

      first thing I would do when I get in, uh, you know, not even when I get in, when I wake up, I have my work laptop, I check how much money we've made. In quant, everything is data-driven, and you're not doing trading by talking to people. You're just looking at data, and you're trading from data. People ask me for, like, a real-world analogy. I often say it's like running a car dealership. Somebody who runs a car dealership, you can sell your car to them, you can buy a car from them, and their job is basically to kind of have an inventory of cars ready to sell, and they buy cars at a little slightly lower price and sell cars at a slightly higher price. And the reason quant tr- finance is able to make so much money is because so much volume trades in the markets, you know? The S&P 500 future on CME, that's one future, one product, trades $500 billion a day. That's, like, more than the GDP of any country. But I think there's a lot of cognitive dissonance amongst quants and traders that they've kind of convinced themselves because they're earning big fat paychecks, you know, I was earning big fat paychecks as well, that, "Hey, you know, we're, we're making a lot of money. We must be doing something good for the world." High-frequency trading is all about exploiting market inefficiencies, like futures that expire, for example. You know, S&P futures expire every three months because that coincides with the time of the harvest for certain crops in the Midwest. There's no need for them to expire. If they expire, what happens is people have to sell the future and buy the next one. They pay transaction costs every time they trade, and they lose money, and high-frequency traders make the other side of the money. No one in quant trading wakes up in the morning and they think, "Oh, how do I make the markets more efficient today? How do I lower cost of consumers every day?" People in trading just wanna make money so they can earn big bonuses. And

4. 3:14 – 4:09

   The Golden Handcuffs of Big Paychecks

   1. AKAnnanay Kapila3:14

      I think Tower has really, really high quality of talent. So you know, a lot of my colleagues were International Math Olympiad medal winners. There's this entrance exam in India for, like, the top technical universities called IIT. A lot of them are ranked in kinda the top 50 in India when they did, they did this test. They're stuck in the same golden handcuffs. You know, they're, they're getting paid too much, basically, and they don't wanna leave. Quant finance has sequestered a lot of very talented people in an industry that basically adds no value to the world, and that was really the source of the guilt. I felt that I was wasting my life. Think carefully why you're doing it. Think about, honestly, is, is this what you wanna be doing in five, seven years' time? Almost nobody I spoke to said they would still be in the job in five years' time. A lot of them were like, "Two, three years, and I'll go do something else." Like, you know, they're still there. [laughs] So are they still there because they want to be there, or are they still there because they failed to reevaluate?

5. 4:09 – 5:10

   But You Need Money to Chase What Matters

   1. AKAnnanay Kapila4:09

      Towards the end of my time at Tower, a bunch of things happened in life that kind of aligned that made me think that maybe I should leave this and, and build a startup. FTX was a very profitable business. They were backed by Sequoia, very high valuation. I don't wanna defend SBF and say, you know, what he did a good thing or the end justifies the means. I think what he did was clearly wrong. He does deserve to be in prison, but I think on the innovation side, it's a very successful company. A lot of the products that they made was actually really good. I think another really interesting thing is that FTX did try to go down the path of US licensing and US regulation. FTX purchased an exchange in the US. Interestingly, I'd already had the idea to do this exchange, what is now QFEX, like, about six months before. I have, like, a burning desire to improve the markets because I've worked on the other side of the markets as a quant in high-frequency trading, and I thought, "If the aim really is to make markets more efficient, why don't you just improve the nature of the market and improve the nature of the design so that high-frequency trading firms don't make all this money which they're just extracting from investors, and the market just becomes fairer

6. 5:10 – 6:10

   Leaving a Top Hedge Fund Job

   1. AKAnnanay Kapila5:10

      that way?" Towards the end of 2024, early 2025, I kinda pitched this idea to my co-founder, uh, one of my best friends. We've known each other for a very long time, I guess, like, since we were 18, pretty much. Josh worked at Citadel but on the engineering side. He didn't know anything about the exchange side of things, right? We just called and messaged like, "Hey, you know, I have this, like, crazy idea." I was like, "You know, this is so obviously, like, a better market design that there's no way it doesn't exist in five or 10 years' time, right? And either the incumbents get their act together, or we do it." He was like, "Yeah, like, let's, let's do it." He left his job at Citadel, which is one of the top hedge funds in the world. Job was going pretty well, and he had a lot of money saved up. I wouldn't be under any financial pressure. Once that side of the equation was solved for and I had some decent money in the bank, then I thought, "Okay, it's, it's, it's time to do something that, you know, I wanna make my life's work." I left my job in February 2025. You know, I was really getting to the point where I was thinking, "Hey, you know, c- can anything really go wrong if I spend, you know, two, three, four, five years of my life, let's say, and, and things don't, don't really work out?" [gentle music]

7. 6:10 – 7:10

   Build Something Worth Telling Your Grandkids

   1. AKAnnanay Kapila6:11

      You know, we applied for funding from YCombinator. We applied. You know, Josh calls me, and I'm, like, in Austria watching some opera show. He's like, "Oh, we got an interview. We got an interview. You have to come." I flew the same day back to London. They ask questions that really test whether you've got into the details of understanding where the problem lies and what the why now moment is. Like, why is now the right time to build this idea? PG explained this to us. They didn't think about things like what's the probability of this idea succeeding. They just wanna know the probability is bigger than zero. Even if it's 1%, but it's a huge idea and you're a good team, they'll fund you. I'm aware that the company we're doing right now, right, it's either gonna make me, like, $50 million or zero, 'cause, like, exchange is like... it's not like a 10 mil ARR business. Like, it'll never be a 10 mil ARR business. It's either zero or huge. And they said, "This is a huge idea, and are these guys the right people to do it?" The next day, uh, we got the offer, and then we're like, "Okay, and now that we have funding, we can probably build it." But building in fintech is always tough because you can't launch something and if it breaks just say sorry to your customers, right? That's, like, a real breach of trust.

8. 7:10 – 8:30

   The Exchange Launch That Almost Broke Us

   1. AKAnnanay Kapila7:10

      The hardest day is during YC, actually. We'd actually launched the exchange internally just to YC. We were kinda forced by our partners to launch early 'cause they were like, "You need to do this, otherwise you'll never get user feedback. Just, just do it, right, right now." I, like... I'm very jet lagged, so I work at 3:00 AM. My co-founder's there, and he's like, "Oh, man, the exchange has blown up." We looked at everyone's result. Like, somebody was plus $1 million. Somebody was minus $1 million. We're like, "Oh, man. We only gave them, like, $100 to play with. Like, how has this happened?" So we had to basically spend all day reconstructing what had happened, figuring out how much money everyone owed and how much they didn't owe, reimbursing some people. That was the first time we took a loss as, as a company. We, we had to say, "Oh, we're sorry. It says that you're minus $100, but we don't think this is right. We'll just give you $100." Luckily, it was still small scale. It wasn't, like, a big loss for us. The issue was it really hit home how difficult it is to build a 24/7, perfect, fully available system that keeps track of... If you run something 24/7, like, anything can go wrong anytime, right? A lightning bolt can happen, fire in the data center, whatever. We didn't sleep properly for days after that 'cause we were like, "We don't want this to happen in life," right? 'Cause if we do, it's game over for us in exchange. I think the reason the partners made us do it is to make, basically make us grow up and realize the gravity of the situation we were in, so that was a really tough time. Both the best days of our life and the worst days of our life, we were working all the time, like, 100 hours a week, very focused, uh, very frenetic.

9. 8:30 – 9:10

   Raising at a $95M Pre-Revenue Valuation

   1. AKAnnanay Kapila8:30

      You know, there's some misconceptions maybe about how fundraising happens in Silicon Valley. It's very quick. If the check size is less than 500K, typically it's a 30-minute meeting, and you get the decision, like, on the call or just after. If it's kind of a bigger check, then... You know, we had a first meeting and a second meeting in person, which was, you know, both were 30 minutes, let's say, roughly. And day one, we had a bunch of angels. We got some money. And then we stopped taking angel money. Yeah, then it was about the bigger funds, so we, we had two major funds. One was General Catalyst. One was Nexus Venture Partners. Round closed at 95 million valuation. We weren't making any revenues. We were pre-revenue. The only point in raising venture money is if you can be massive, where you have to be at, like, the huge scale. Then a VC will find it

10. 9:10 – 9:49

    Silicon Valley vs London: A Different Money Mindset

    1. AKAnnanay Kapila9:10

       very hard to say no. I think, you know, you guys are based in San Francisco. What's very interesting for me, you know, kind of being in London for a while, now we're in New York. In London and New York, people are very concerned with how much money someone has, how much money they make, how much money they have in their bank account, how much money they're gonna make in the future. Everything's about money. San Francisco, people really, I think, don't talk about that as much or don't think about it as much. They're much more concerned with, you know, impact, that kinda thing. And it was really useful to live in San Francisco for, like, four months. HFT strategies don't lose money, right? Like, you can't even lose money doing HFT. If you lose money on a particular day, you get, like, an email from your boss like, "What the, what the hell happened?" Silicon Valley approach is like, you know, "Let's try and make something that's gonna make, like, a billion dollars in five years' time, but don't even think about

11. 9:49 – 10:45

    What's Actually Broken in Traditional Markets

    1. AKAnnanay Kapila9:49

       the money," right? It's like not even on the scale, which is, like, a new way of thinking. That was a nice part of being in San Francisco. You know, what we wanted to do is make sure everyone trades on the same equal playing field, level terms. If you wanna buy Tesla, Tesla trades on NASDAQ exchange, but the interface is through Robinhood, and there's another intermediary, which is called a clearinghouse, which basically does the risk management and settlement, right? It's that intermediation, three separate companies involved in doing one trade, that should really just be done by one company that's as most efficient as possible. That's really what we're offering. On QFEX, our pricing is completely transparent, right? So we don't make money from this, like, profit share agreement. We just make money from fees. Our fees are as low as possible. We actually give a lot of our fees back to users if you kinda refer your friends or whatever. It's similar to Stripe, if you want, like, a direct comparison. Stripe really reduced the frictions when it comes to doing payments. We're reducing the frictions when it comes to trading. And so much money trades through financial markets in ways, in ways that people don't even understand, that even if you make small improvements, they have massive downstream impact.

12. 10:45 – 11:29

    Advice to Young People in High-Paying Jobs

    1. AKAnnanay Kapila10:45

       I think the best founders always have that, you know, that the company they're working on is their life's work, right? Like, they want it to be their legacy. It's more than just money for them. And I was ready to reach that stage where I, I was no longer just thinking about the money. You know, there's an element of me that's, you know, doing the current company for the money, but it, there's also an element of, you know, we wanna go out there and be the change in the world that we wanna see, and here's a very obvious change that I see now that I think not a lot of other people can work on. It's what you wanna tell your kids that you spent your life doing. Do you think this job will still be around in five, seven years' time? If you're still a young person, you should be optimizing for learning and optimizing for growth, not optimizing for how much money you're making right now. [gentle music]

Episode duration: 11:30