March 29, 2012 in ATDC News

Startup Chronicles: Lucena Research

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Ever wonder what would happen if HAL, the computer from 2001: A Space Odyssey, used its artificial brain to predict stocks instead of kill astronauts? Tucker Balch has and the result is Lucena Research. While it may not be as vocal or nefarious as the infamous red-eyed villain, Lucena’s patent-pending technology does apply advanced artificial intelligence to the task of forecasting financial futures.

“We want to establish a reputation as the premier company that puts machine learning into finance,” said Balch, managing partner of the ATDC Select member company.

With an innovative product in the pipeline and significant business momentum generated by Lucena’s participation in the inaugural Flashpoint program earlier this year, that goal could soon become a reality.

Named after one of the most famous and important positions in chess endgame theory, as well as the Spanish town that inspired the name, Lucena aims to provide investors with unique tools designed to find investment opportunities while simultaneously reducing risk in their portfolio. A SaaS web-based interface provides access to powerful algorithms, including equity price prediction, hedge finding to reduce risk and back testing to validate strategies.

The idea for the startup came about in fall 2010, when Balch returned from sabbatical to teach Artificial Intelligence and Finance at Georgia Tech. After developing the software infrastructure for the class, he recognized the opportunity to take those algorithms and turn them into a successful business. And when it comes to AI and investments, Balch certainly has the expertise.

A former fighter pilot for the U.S. Air Force, Balch previously served as a research professor at the Robotics Institute at Carnegie Mellon University before joining Georgia Tech in 2001. About five years ago, he began writing his own investment software – eventually resulting in a consulting job with thinkorswim, where he helped create an intra-day stock price reduction algorithm. Following that, he joined Cerebellum Capital, a hedge fund company that uses AI and Machine Learning techniques as a core technology for trading. In his current position as an associate professor in Interactive Computing, his research includes the study of social insects, such as honey bees. His lab’s software tracks their “dance” movements by video and translates how those movements change under different conditions.

When Balch heard about the creation of Flashpoint – a four-month, lean accelerator program designed to help startups in their search for a rapidly scalable business model – that provided the impetus to transform Lucena into more than just a concept.

“One of the requirements for joining Flashpoint is that you can’t be a single-person company, so that forced me to look for a co-founder,” said Balch. “I found John Corwell, one of my former students, someone at the top of his class. He’s our lead developer now, and he went through the program with me.”

Now focused on strategic partnerships and product development, Lucena is in the midst of a financing round. CEO Erez Katz, an accomplished entrepreneur who served as the startup’s mentor during the Flashpoint round, recently joined the team. Their goal is to launch the product this fall and build up a base of at least 100 customers within a year.

“For us, the most important metric is customers,” said Balch. “I don’t know of any other company that uses AI technologies to forecast future prices. While it’s likely that some of the big hedge funds use this technology internally, nobody offers it to the individual investors. We really will be offering a unique product.”

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