We just closed an investment in a terrific company located in London by the name of OpenGamma. In very simple and high-level terms, OpenGamma provides risk management and risk analytics solutions for banks and investment funds. We invested alongside Accel who was the company’s seed investor in a round that will enable the company to invest in its sales and operations infrastructure to support its customers as it begins to ship product later in Q2. So why did we invest?
1) Huge, Critical Market – The global financial system is larger and more complicated than it has ever been. Enabling financial organizations to understand exactly where they stand in any given situation at any given moment is critical to our global economy. When you don’t know where you are, Lehman Brothers happens. This is a big market with a lot of pain.
2) Old, Out-dated Competitors – Would you be worried if you knew that the software that was controlling the plane you were riding in was written before there were planes flying in the air? I’d be! How about if I told you that most of the software that enables banks and investment funds to understand the movement of the trillions of dollars that flow through our globally inter-connected financial system was created before most of the instruments that are traded today existed! How can you provide a system to manage something that you did not contemplate existing when you wrote it? Bailing wire and chewing gum is the answer.
3) Customers Looking for Change – These legacy systems are black boxes that provide no clue as to the calculations that go into assessing the risk position of an organization at any given time. Moreover, since they were architected 20 years ago, they cannot even contemplate doing so on a real-time basis (just because you end the day with a neutral trading position, it does not mean that you did not put your entire bank’s capital base at risk at lunchtime – yes, it happens). Risk is not something that happens at the end of the closing day, it happens every second of every day. Customers realize this and are tired of these legacy, monolithic, expensive and unwieldy applications that they have spent millions of dollars implementing.
4) Change Meaning Open and Flexible – OpenGamma is open source. You read correctly – a financial services application that is open source. This does not mean free – you pay for support and maintenance, two items that are pretty damned important and valuable when your entire organization depends on it. But what it does mean is that every calculation is transparent – you can have absolute confidence in how it works because hundreds of people (including you) have checked it. You can also add to it and extend to it. Your staff implements it in modules that can complement your existing infrastructure, so you can save the investment you have made over the past 20 years. This is an absolutely revolutionary approach to this market space.
5) Great leadership – CEO Kirk Wylie (read his blog, very insightful) and his team are an amazingly talented group of individuals. I joke that Kirk was genetically engineered to create this company at this time – he is a hard core techie with long experience in database design and architecture, he was a founder of a Silicon Valley based open source start-up and he spent six years working in a hedge fund (on both the up part of the curve and the subsequent collapse). We have looked at many companies in the FinTech space. Most companies have either great Fin (with lousy tech) or great Tech (with lousy Fin). This company has great Fin and great Tech!
6) We can make a difference – We have a long history of investing in this space, most recently and notably with our great portfolio company, SecondMarket. Our home base and headquarters is here in NYC, the world’s business capital. For OpenGamma to be successful, they will have to be successful here in NYC and we can help with customers, team and technology.
We are really proud to be part of this company and this team and we look forward to helping them build OpenGamma into the the industry changer it can be.
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