Khosla backs Kurzweil stock picker startup

Vinod Khosla and former Nasdaq Chairman Michael Brown invested nearly $2 million of their personal money in a recent financing round for FatKat, a software company that picks stocks based on algorithms created by artificial intelligence expert Ray Kurzweil, according to a regulatory filing.

The infusion is part of a $2.4 million Series C round of financing. Other backers of FatKat include Teradyne cofounder Alex d’Arbeloff; funds controlled by Michael Singer, a corporate development executive at Revolution Health Group; and nanotech expert and Zyvex Corp. CEO James Von Ehr. The funding amounts and the names of investors from previous rounds are undisclosed.

Kurzweil is a pioneer in the fields of optical character recognition, text-to-speech synthesis, speech recognition technology, and electronic keyboard instruments. He is the author of several books on health, artificial intelligence, transhumanism, technological singularity, and futurism. His innovations are applied in FatKat’s software, which will use quantitative analysis to pick stocks.

There are hundreds of firms that use quantitative analysis to make stock trades, though the four largest U.S.-baed institutional investors—Fidelity, Barclays, Merrill Lynch and State Street—account for $2.3 trillion, or more than 15% of total securities activity nationwide. Many public stock investors have automated their investment algorithms and restrict humans from intervening before a stock position is taken.

Because securities traders are in a highly competitive industry and huge amounts of investment are at stake, FatKat maintains that any slight advantage that its algorithms offers will be in demand.

“If you were going to build an AI-based black-box there are few people better qualified than Ray Kurzweil to do so,” says Bill Burnham, founder of hedge fund Inductive Capital. “As far as AI-based black box models goes one has to imagine that he has one of the best if not the best, but I have no idea how his risk adjusted returns stack up against all the other ‘quant’ funds out there.”

Aaron Kleiner, the CFO of Wellesley Hillis, Mass.-based FatKat. Kleiner, is a graduate of the MIT Sloan School of Management and has run a handful of Kurzweil spawned companies, including Kurzweil Applied Intelligence, maker of voice recognition software; Kurzweil Music Systems, a music keyboard maker; and Kurzweil Computer Products, developer of the first print-to-speech reading machine for the blind.