Munich Startup: When we last spoke, you said that Sub Capitals wants to achieve more equality in financial markets and that investing with AI should become established. Did you achieve this goal?
Franz Liebermann, Sub Capitals: I’d say: Yes, in part. The path to more equality is long, even in financial markets. What I can say with certainty is that we’ve laid an important foundation with our launch. We’ve lowered the entry barrier to investing with AI from several million to 100 euros. Now, step by step, more equal opportunity is being brought to the market because private investors have access to an asset class that was previously closed to them. This type of investing isn’t established yet. But it’s a start.
“Gained the trust of the industry”
Munich Startup: What obstacles did you encounter along the way?
Marius Siegert, Sub Capitals: In our opinion, the biggest challenge of any startup is the so-called “product market fit”, which we experienced firsthand last year during the market launch of a new fintech app. The problem wasn’t the product itself, but financing an app in uncertain times with incredibly high customer acquisition costs, the so-called CAC.
It also took a while before we gained the trust of the industry. But after 30 months of live trading in financial markets with AI, we were able to prove that we’re not a one-hit wonder. Today we’re perceived as a trustworthy financial technology company, and that opens some doors. But trust, especially in the financial industry, always takes time. That was a major learning.
Munich Startup: How has your solution evolved?
Franz Liebermann: The answer is reflected a bit in the first part of our answer about obstacles. After we decided to discontinue the app, it became clear to us: disruption isn’t always the best path in every market. Often, as in capital markets, you need to transform existing infrastructure rather than reinvent it. In the industry, it’s a very goal-oriented approach to work with an approach called “embedded finance”.
Sub Capitals: Market entry with AI certificate
At Sub Capitals, we now cover the entire value chain of data science and AI in asset management. Starting with the data used to train the AI models, all the way to finished trading strategies based on those AI models. The AI-based trading strategies we’re now setting up with the issuer of our products – UBS – are just the upper end of the entire process. In addition to launching our AI certificate with UBS, we’re currently working on making the entire value chain available to financial institutions in various areas via a platform for institutional clients. We already have numerous inquiries from interested customers and initial platform projects to bring trading strategies with machine learning up to state-of-the-art standards.
Concretely, with the product launch with UBS as issuer, no app needs to be downloaded anymore. Instead, every investor can buy our product through their own broker (WKN: UBS5C2). Customers embed a security in their portfolio that invests with AI. We thus use the customer’s existing “infrastructure”, very much in the spirit of “embedded finance”. The product, which reflects the performance of the AI, can be traded on the Frankfurt and Stuttgart stock exchanges or directly with UBS. So we no longer manage the entire portfolio as previously planned in the app, but only a clearly defined part for the customer, and can thus further diversify the portfolio since the AI can act independently of the overall market.
More focus on personnel management
Munich Startup: And how are things looking financially for you?
Marius Siegert: We founders invest our time as well as the savings we have left to a large extent in Sub Capitals. We will also invest at least 50% of our private portfolios in our new AI certificate. Not optimal diversification, but we’re convinced of our approach.
If the question was more about Sub Capitals’s liquidity, we’re currently very well funded and have very well-known investors in the scene for our strategic direction.
Munich Startup: What learnings has your founding team been able to take with you so far?
Franz Liebermann: Our motto since 2017, and also in the development of AI, is trial and error. This was the only way we could always stay up to date in such a rapidly growing field with the latest applications and research publications. But the same doesn’t apply to building the company itself. We’ve now reached a size where we have to take responsibility for our employees and time financing rounds and work starts very carefully. Unfortunately, we also had lay-offs in 2022 as part of the pivot to the app. And we don’t want that to happen to us again.
Next milestone: Solution for institutional clients
Munich Startup: What role did the Munich ecosystem play on your journey so far?
Marius Siegert: We see ourselves as a very university-connected spin-off of TU München and Hochschule München. Not only because most of our team comes from these universities. But also because the startup support programs of the SCE and UnternehmerTUM took us very far in the first years after launch. Overall, we feel very comfortable with the high density of asset managers here in Munich and invite everyone to join us at Werk1 for a coffee.
Munich Startup: What milestones are you working toward next?
Franz Liebermann: As already mentioned, we’re working on a solution to supplement institutional investors with outdated infrastructure and low data utilization with AI in the investment process and to expand it all into a platform solution for AI in asset management. We already have first partners for this. However, we want to focus first on our market entry with our AI certificate and are thus getting closer to our goal: more equality in financial markets.
