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When Science Meets Investments

A Slice of Scott Knudsen, Co-Founder and CEO of Cove Markets

The best meetings are those that start out as idea exploration and end up with a solid business plan in place. This is what happened with the founder of Cove Markets, Scott Knudsen. But, let’s start at the very beginning…

As an engineer, Knudsen has loved building things. Another passion, numbers and math, become the reason he was selected for his first job. As Knudsen puts it, “Because I was really into math and numbers, I ended up getting into trading. I had this interview with a trading firm, which was a bit unique since everything else I was looking at was engineering. About 90% of the interview was about how quickly you could do math, so that worked out pretty well. At the time, the trading pits in Chicago were starting to get automated, so there was really an opportunity to disrupt an entire industry, especially for computer science and electrical engineering graduates who would be able to do really well when everything moved to automated trading.” So, while the offer was quite low, he accepted it because he thought that the long-term gains and the disruptive upside far outweighed the short-term compromise.

When he joined the company, there were just three people based in the U.S., so yes, it did seem like a huge risk at that time. Cut to 14 years later, Knudsen, now the country head, led a team of over 200 people. His experience there honed his technology skills further since they wrote the coding algorithms from scratch, tweaking and course-correcting based on the instant market feedback. This stint served Knudsen well because it was as close to a startup as it could get. Growing the business and the team, handling competition, dealing with continued volatility and change all helped strengthen his entrepreneurial ability.

Post the 14 exciting years of working with IMC, the entrepreneur in Knudsen wanted more, he wanted to set up something of his own. This was in late-2017, just about when cryptocurrency was gaining serious traction. Over an informal, brain-picking chat with a local angel investor, the one referred to at the start, the idea took concrete shape and Cove Markets was born. Knudsen put in his money, risking a lot (which entrepreneur doesn’t?), to bring his idea to fruition. Cove Markets wasn’t envisioned to be a mere money churner, Knudsen wanted to add value too. Cryptocurrency, at the time, was a new financial asset, being traded on the newer exchanges, not the traditional ones like the NYSE. There was hardly any trading infrastructure in place. This is when Knudsen thought of adapting and applying years of learning and experiences to this new market, one that had huge growth opportunities, again via disruption.

Knudsen has an innovative take on risks, that of asymmetric upsides. In his words, “I think if you’re going to take a big risk starting a new company, you want the best-case scenario, which has to be much larger than the downside because when you start a business, you’re much more likely to fail than succeed. So, the upside needs to compensate for the risk that you’re taking. Since starting this business three years ago, my partners and I haven’t paid ourselves a salary. We’ve put in money and a ton of time, and you want to make sure that it’s going to be worth it.”

While Knudsen was completely committed to Cove Markets, his partner had a full-time job which is why they looked for a third partner, who would not only put in capital (like them), but also help build the whole system, taking up the role of the CTO of Cove Markets. This is where Knudsen’s networking skills served him well. As they say, your network defines your net worth… and so it is. Ira Weiss, a local venture capitalist Knudsen knew, introduced Knudsen to Victor Glava. They met over a beer and ended up with ideas scrawled across a whiteboard, and Glava eventually joined the team.

Most startups encounter a challenge in getting great talent on board. Not only is finding the right fit a big challenge for founders; from the other side of the table, most people are wary of joining a startup. What worked in Cove Market’s favor was the fact that working with cryptocurrency excited a lot of people, while some came on board because they were keen on working with a startup. There is a strange dichotomy here, when a startup is new, people have to be urged, and often paid more to come on board. Once they get funding and the venture has created waves, people join in at lower packages. This is something that most new founder-driven organizations face and have to deal with.

Funding, a quagmire for most new ventures, was an easy path for Knudsen. All the partners put in their own money, and their individual networks came through with the rest. This is the power of a strong and long-term network every entrepreneur should ideally learn this one, really important, lesson: that of building great social capital- in terms of relationships and networks. The COVID-19 pandemic has definitely impacted the way the world does business as is the case with Cove Markets. Knudsen misses the one-on-one and face-to-face meetings which don’t happen as much as they used to before the pandemic hit us, but if your network is sturdy enough it will stand testing times.

Fundraising, according to Knudsen, is largely concentrated around the Bay Area in San Francisco while his company is based out of Chicago. This geographical distance can prove to be quite a gap, unless you know and can leverage on local venture capitalists like Knudsen did. Yet another lesson for would-be, and already-are entrepreneurs.

There are several takeaways from Knudsen’s journey so far. One of his key assets has been trend precognition, whether it was when he saw the imminent automation in trading (why he joined IMC) or the potency of cryptocurrency. This aspect is a huge advantage for any founder whether a first-timer or a serial entrepreneur. Another aspect Knudsen emphasizes is experience, relevant and diverse experiences have helped him greatly in his journey. He feels too, that age is not something that needs to deter a person, seeing that statistics say that the average age of first-time entrepreneurs is about 45. There will always be unicorns who blossom in the early twenties, but, for most, they get knocked about a little, gather experience, build networks, before they get to embark on their dream of building their own company. It really helps. What also helps is to keep the focus narrow and laser-sharp, instead of scattering energy and resources in multiple directions trying out all the ideas coming up in brain-storming sessions. Knudsen advises choosing an idea and sticking to it, making it work.

Knudsen’s dream is to mentor and guide all those in his team, adding value to their lives and those of his customers. And he is doing admirably well in this where several of his protegees are doing very well for themselves and have grown to great heights. Knudsen and Cove Markets have really got the balance right! In December of 2021, Cove Markets was acquired by Robinhood, and Knudsen has taken on a new role as Director of Crypto Trading Operations.

Founder Bio

Scott Knudsen received his B.S. in Electrical Engineering from Northwestern University. He began his career as a Trader at IMC, eventually working his way up to be a Partner. In 2018, he founded Cove Markets and led as CEO for three years before it was acquired by Robinhood, where he is now Director of Crypto Trading Operations. Connect with Knudsen on LinkedIn.

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