1988–1996: Founding and early years
The company was founded by David E. Shaw, a former Columbia University computer science professor with a PhD from Stanford University.[6] D. E. Shaw began investing in June 1989, having secured $28 million in capital from Donald Sussman's Paloma Partners and several private investors.[7] The company carefully protected its proprietary trading algorithms. Many of its early employees were scientists, mathematicians, and computer programmers.

In 1994, the company's net return was 26 percent. It managed several hundred million dollars in "market-neutral strategies, including statistical arbitrage, Japanese warrant arbitrage, convertible-bond arbitrage and fixed-income trading."[8] Its non-hedge fund activities in the mid-90s included setting up a broker-dealer subsidiary, founding the email provider Juno Online Services, launching an online banking and brokerage firm, and opening an office in India focused on developing software and systems to support the company's trading operations and online businesses.[7]