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STAGE 0: The Money Document
The trading and money management industry is highly entrepreneurial. Individuals who
start new trading/investment systems (in any legal form) are confronted with traditional
activities related to entrepreneurship—raising seed capital, product development, market-
ing. Trading/investment system start-ups are distinguished from other new business ven-
tures, however, by the need to develop the investment/trading strategy concurrent with
the business strategy. Put another way, before any trading can begin, trading/investment
system entrepreneurs must consider two sources of capital:● Seed capital to fund design and development of the trading strategy and the ena-
bling technologies.
● Investment capital used for trading.The main costs of starting and running a new trading/investment system are hardware
and software, data, and people. And none of these comes cheap. To raise seed capital to
cover start-up costs, we propose a formalized model we call the Money Document. From
a design perspective, the Money Document is the highest level abstraction of a trading/
investment system.
The purpose of the Money Document is to provide an overview of a proposed trading/
investment system in order to raise seed capital to fund the research stage (K|V Stage 1)
of trading/investment system design and development. Subsequent to successful comple-
tion of the research phase, additional funds will be released to continue to the backtesting
and implementation stages. Although created by the product team, a Money Document
should be written in simple enough terms (i.e., not mathematically advanced language)
so potential seed capital providers can grasp the nature of and prospects for the proposed
system. The Money Document should reference specific competitive analysis and market
data to justify the capital expenditure of building a new product.
In the business literature, several studies show that well-defined deliverables and pro-
cedures during the fuzzy front end reduce deviations and foster project success. (We con-
sider the Money Document essentially to be Stage 0 of the K|V methodology.) The most
successful firms review each new trading/investment strategy in a consistent and logical
manner. A Money Document develops a business case for a new trading system founded
on estimates of market trends, investor demand, capital requirements, competitive
analysis, and project uncertainty. Further, the Money Document allows firms to reviewCHAPTER ◆ 6