Of course I really have no idea how difficult it would be to 'start' or manage a hedge fund. However I have met people who have run hedge funds and presumably such a person could be hired. Or more simply an exclusive partnership could be established with an existing hedge fund which was already able to use the data.
The underpinning of my surprise was the business case analysis. Your the CEO of Foursquare and you're looking at all the ways you can use your assets and services to generate revenue. You come up with selling this sort of demographic data. That gives you revenue $X. Now one of the buyers of your demographic data is hedge funds that are making a return Y % on their investments. Which increases a marginal amount dZ % when they incorporate your data into their strategies and algorithms. If you could accurately characterize the impact you could compare 1/2dZ % annually to the $X value to see which was larger. Conversely you could take say $10M and put it into the hedge fund and have them remit back to you 1/2 of the annual return each year and compare that to $X.
And of course if you're Goldman Sachs does it make sense to buy FourSquare and keep all the data for yourself? One could look at that investment in a similar way using internal rate of return on the buyout price vs the improved rates of return on their investment products.
The underpinning of my surprise was the business case analysis. Your the CEO of Foursquare and you're looking at all the ways you can use your assets and services to generate revenue. You come up with selling this sort of demographic data. That gives you revenue $X. Now one of the buyers of your demographic data is hedge funds that are making a return Y % on their investments. Which increases a marginal amount dZ % when they incorporate your data into their strategies and algorithms. If you could accurately characterize the impact you could compare 1/2dZ % annually to the $X value to see which was larger. Conversely you could take say $10M and put it into the hedge fund and have them remit back to you 1/2 of the annual return each year and compare that to $X.
And of course if you're Goldman Sachs does it make sense to buy FourSquare and keep all the data for yourself? One could look at that investment in a similar way using internal rate of return on the buyout price vs the improved rates of return on their investment products.