What does one do after creating nuclear weapons simulations in rural New Mexico for four years? Move to Minnesota and work in investments, of course!
For Chip Kent, the leap was a little more intuitive than it sounds. Kent is the CEO of Cecropia Capital, a value-investing fund for private investors, and he is chief data scientist at Deep Haven Data Analytics, a big-data software analytics company with offices in Colorado Springs, New York and Minneapolis.
Kent grew up outside Houston and earned his undergrad degrees in chemistry and physics with a minor in math at Texas A&M. Upon graduation, he immediately left for the California Institute of Technology, where he studied theoretical chemistry as a graduate student.
Kent spoke with the Business Journal this week about the collision courses of technology, science and business — and why Colorado Springs is well positioned for the future.
What is theoretical chemistry?
In chemistry you have different compounds that react with each other and make different things. There’s physics that lets all that stuff work.
What I did was quantum mechanics, which is how the atoms react with each other.
I worked on new computational techniques where you can just put in a chemical and from that get properties and other information.
Computers are getting more powerful … so instead of having to go to the lab, you can instead go to your computer and run something before it’s even tried in a lab.
What happened after Cal Tech?
I went right from Cal Tech to [the National Laboratory in] Los Alamos [N.M.]. I believe since 1992 there’s been a ban on nuclear weapon testing. Because of that, the majority of testing is done through some kind of simulation. I primarily worked on software that looked at how efficiently these pieces of [simulation] software were working, looked at new hardware the software could be run on and looked at ways to make the software more reliable and accurate. Since you can’t really blow things up, we blew them up inside a computer.
How did you go from New Mexico to Minnesota?
I hit the lab at Los Alamos at an interesting time. There was a summer intern who managed to shoot themselves in the eye with a laser. I think they lost some vision. It wasn’t a good thing.
That led to this huge political firestorm. The director at that point … went off scale and shut the lab down for more than a month.
I was running five projects and our budget was a couple million dollars. All of a sudden they were going to shut these projects down — they were on schedule, under budget and things that were needed — and what that let me see was the lab didn’t have a clear vision. It was the rich kid running around with his dad’s credit card. I felt like I could work there indefinitely but didn’t know if I could do something useful or not.
So I went to Minnesota. In grad school, a friend of mine and I were interested in investing. We would try things and analyze data in different ways.
We ended up parting ways as we graduated and he ended up as the first employee at a startup hedge fund in Minnesota, which is Walleye Trading. He picked up the phone and called at the right time for me to leave New Mexico.
Was is difficult going from science to investments?
It’s not investments as most people think of investments. This is the world of quantitative finance. All the decisions are done by machines using algorithms and using data. It’s not some guy sitting around saying this stock will go up or down. It’s a quiet environment where people are doing quiet experiments to determine how the market behaves and using that to create robots to go out and trade for them.
And the business was designed to be automated?
Historically this has been done by people. … We believed a lot of these people weren’t adding value and you could then have a piece of software do the same thing. So I designed the software and the intelligence that goes with the software. We had a team doing that and that actually led to one of the two businesses, which is Deep Haven. For Deep Haven we have four partners and I’m chief data scientist.
How did you get from Minnesota to Colorado?
While I was in Minnesota I found out my dad had cancer — multiple myeloma — and needed a stem cell transplant. It was one of those points in life where you evaluate things. There’s a Lao Tzu quote, ‘If you do not change direction, you may end up where you’re headed.’
At that point I kind of stopped and thought about where things were. If I only live 20 more years, what will that look like? It was an opportunity for change.
I went to Texas for a few months while my dad was going through transplant. He’s fine now, but at that point [my wife] Brooke and I were thinking about where to live.
‘If we could go anywhere what do you want to do?’
We looked at quite a few places. We thought about going back to Los Alamos but it’s a challenging place to run a business. The population is small, but you do have talented people at the lab. For running Cecropia, though, some of the tax laws were challenging. …
We’d come up here a reasonable amount when we were in New Mexico because I was a competitive weightlifter and we’d come up here to compete. We thought about checking it out. It was a nice location and not too crowded, and Colorado Springs has twice the U.S. average density of programmers, which is not what you’d expect.
We started Cecropia in the midst of these decisions. We’d talked about spinning off this big data technology company as a separate business and then decided to do that with Deep Haven.
In this reevaluation of things I needed to manage my assets. … So because I’m putting the effort in managing my own assets, it’s a small incremental effort to offer that to other people. So what we do is called concentrated value investing. The value investing part is conceptually simple. Basically we assess what we think your business should be worth and then we attempt to pay a price significantly less than that. The concentrated part means we are taking a small number of positions, so at any given point we’re holding eight to 12 securities, which is a significantly smaller number than you might hear otherwise. The end goal is to appreciate our investments. We’re attempting to buy things at an unreasonably low price and sell them at a fair price sometime later.
Is there crossover between companies?
Just in the thinking. Both of them involve quantitative analysis. It’s just applied in two different ways.
How have the companies grown?
Since we’ve been in the Springs, we started with Al, one of our employees, who was working out of my house. We started adding people and it was clear there wasn’t enough parking at my house. We moved to a co-working space for a year or so, then another spot in this building and now we’re here. We went from Al to 15 guys in the Springs in 2½ years. We also have an office in New York with 12 to 15 people and three employees in Minnesota.
Explain your leadership style.
We’ve approached things differently than maybe most people do and that’s instead of hiring a large number of people, we try to hire a small number of exceptional and motivated people. By doing that you end up with a totally different leadership environment. It’s an environment where there’s no micromanagement. You talk to somebody and at that point it’s their mission to get that job done and use whatever resources they need to do that. It can seem chaotic certainly to someone who may have come from a more structured business.
Are you confident in finding a long-term workforce here?
It’s certainly hard to find really good people in math or computer science. The unemployment in these areas is sub 1 percent. So if you can kind of do it, you have a job. Finding good people is even harder.
I think one of the problems is cultural in the U.S. What do people tell their kids to be? Doctors or lawyers. Who tells them to be computer scientists or mathematicians?
These are really good, high-paying jobs. But if you look at India, they tell their kids to be computer scientists.
What are your business goals?
For Cecropia my biggest interest is long-term investment return. I’m the largest investor in the fund — if my No. 1 client isn’t happy, I’m not happy.
As Deep Haven goes, we’re in the messy part of going from a tiny business to a large business. Right now our primary targets have been in the financial industry but our technology is very general. Over time I expect us to broaden out to a number of other markets.
If you look here, we have empty space and we have empty space for a reason — we’re expecting more people.