Sub Capitals: AI-based Investment Strategy

The Munich-based fintech Sub Capitals was founded in 2017 and offers its clients an automated investment strategy based on artificial intelligence (AI). A lot has happened since our last interview in 2020. Here's an update from the two founders, Franz Liebermann and Marius Siegert.

Munich Startup: The last time we spoke, you said that Sub Capitals wants to achieve more equality in the financial markets and that investing with AI should become established. Were you able to reach that goal? 

Franz Liebermann, Sub Capitals: I would say: Yes, to some extent. The road to greater equality is long, including in the financial markets. What I can say for sure is that we have laid an important foundation for this with our launch. Because we have lowered the entry barrier to investing with AI from several million to 100 euros. Now, step by step, more equality of opportunity is being brought into the market because private investors have access to an asset class that was previously closed to them. But that doesn’t mean this type of investing is established. Far from it, in fact. But it’s a start. 

“Earned the trust of the industry” 

Munich Startup: What obstacles have you encountered along the way? 
 
Marius Siegert, Sub Capitals: In our opinion, probably the biggest challenge of any startup is the so-called “product market fit”, which we were able to experience first-hand last year when we launched a new fintech app. The problem was not the product itself, but the financing of an app in uncertain times with insanely high customer acquisition costs, the so-called CAC. 

It also took us a while to earn the trust of the industry. But after 30 months of live trading in the financial market with AI, we were able to prove that we are not a flash in the pan. Today, we are perceived as a trustworthy financial technology company and that opens some doors. But trust, especially in the financial sector, always takes time. That was a big lesson learned. 

Munich Startup: How has your solution evolved? 
 
Franz Liebermann: The answer is reflected a bit in the first part of our answer about the obstacles. After we decided to discontinue the app, it was clear to us: Disruption is not always the best way to enter a market. Often, as in the capital market, you have to transform the existing infrastructure and not reinvent it. For example, it is very expedient in the industry 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, which in turn is used to train the AI models, to the finished trading strategies, based on the AI models. The AI-based trading strategies that we are now setting up with the issuer of our products – UBS – are therefore only the upper end of the whole process. In addition to the launch of our AI certificate with UBS, we are currently working on making the entire value chain at financial institutions in various areas available to institutional clients via a platform. We have already received numerous inquiries from interested customers and initial platform projects to bring trading strategies up to the state of the art with machine learning. 

Specifically, with the product launch with UBS as the issuer, it is no longer necessary to download an app, but every investor can buy our product through their own broker (WKN: UBS5C2). Thus, customers are embedding a security in their portfolio that invests with AI. In other words, we use the customer’s existing “infrastructure”, in the spirit of “embedded finance”. The product, which reflects the performance of the AI, can be traded via the Frankfurt and Stuttgart stock exchanges or directly with UBS. This means that we no longer manage the entire portfolio, as previously planned in the app, but only a part clearly defined by the customer and can thus further diversify the portfolio, as the AI can act independently of the overall market. 

More attention to human resource management 

Munich Startup: And how are things looking for you financially? 
 
Marius Siegert: We founders invest a large part of our time as well as the savings that are left over in Sub Capitals. We will also invest at least 50% of our private portfolios in our new AI certificate. Not the optimal diversification, but we are convinced of our approach. 
 
If the question was more in the direction of the liquidity of Sub Capitals, we are currently very well financed and have very well-known investors for the strategic orientation in the scene. 

Munich Startup: What lessons have you learned so far in the founding team? 
 
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 be up to date with the latest applications and research publications in such a fast-growing field. However, the same does not apply to the structure of the company itself. We have now reached a size where we have to take responsibility for our employees and schedule 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 has the Munich ecosystem played on your path so far? 
 
Marius Siegert: We see ourselves as a closely affiliated spin-off of the Technical University of Munich and the Munich University of Applied Sciences. Not only because the majority of the team comes from these universities. But also because the startup support programs of the SCE and UnternehmerTUM have helped us tremendously the first few years after the start. All in all, we feel very comfortable with the high density of asset managers here in Munich and cordially invite everyone to visit us at Werk1 for a coffee. 

Munich Startup: What milestones are you working towards next? 
 
Franz Liebermann: As already mentioned, we are working on a solution to complement institutional investors with outdated infrastructure and low data usage with AI in the investment process and to expand the whole thing into a platform solution for AI in asset management. We already have the first partners for this. However, we would first like to concentrate on our market entry with our AI certificate and have now come a step closer to our goal: more equality in the financial markets.