Following are my notes on last night’s MIT Enterprise Forum event on ‘Rebuilding Wall Street in a Down Market’.
Barry L. Ritholtz – CEO, Director of Equity Research, FusionIQ
Philippe Buhannic – Co-Founder, Trading Screen
Jacob Pechenik – Co-Founder, Yellow Jacket, acquired by ICE
Lili Balfour – Founder, Atelier Partners
Panel Speaker Biographies
A frequent commentator on CNBC, Barry Ritholtz is a weekly guest on Kudlow & Company. He has guest-hosted Squawk Box on numerous occasions, and also appears regularly on Bloomberg, Fox, and PBS. Mr. Ritholtz was profiled in the Wall Street Journal`s Quite Contrary column (August 3, 2004; Page C3). His market perspectives are quoted regularly in the Wall Street Journal, Barron`s, Forbes, Fortunes, and other print media. He is deeply honored to be the dedicatee of The 2007 Stock Trader`s Almanac`s 40th Anniversary edition.
Mr. Ritholtz performed his graduate studies at Yeshiva University`s Benjamin N. Cardozo School of Law in New York, where he focused on Economics, Anti-Trust and Corporate Law. He was a member of the Law Review, and graduated Cum Laude. His undergraduate work was at Stony Brook University, where on a Regents Scholarship, he focused on Mathematics and Physics, graduating with an BA degree in Political Science.
Philippe Buhannic is an industry pioneer who has brought TradingScreen to the forefront of global markets. With more than 20 years of executive management, technical and marketing experience in international markets, Buhannic founded TradingScreen with Joseph Ahearn on the premise of aiming to service both the buy and sell-sides as global markets became more electronic. Together, he and Ahearn established TradingScreen as a leading execution management system (EMS) of electronic trading, execution and order management. Prior to TradingScreen, Buhannic served as a Managing Director at Credit Suisse First Boston (“CSFB”) in New York.
Mr. Buhannic holds a Masters of Business Administration (MBA) with a specialization in international business from New York University`s Stern School of Business, a Masters degree in Finance and Taxation from Institut d’Etudes Politiques de Paris and has taught business and finance courses at both his alma maters.
Jacob Pechenik is President and Chief Executive Officer of YellowJacket a wholly owned subsidary of IntercontinentalExchange (NYSE:ICE). In his role, Mr. Pechenik, who is also the founder of YellowJacket, is responsible for its overall strategic direction, and financial and operational performance. YellowJacket was acquired by ICE in January 2008.
Mr. Pechenik has nearly two decades of experience in the development and support of enterprise-class trading platforms for large financial services firms and Fortune 500 companies. Prior to establishing YellowJacket in 2003, Jacob founded and served as the CEO of TechTrader, a provider of business-to-business enterprise software for public and private trading exchanges catering to the direct materials markets.
A frequent speaker and widely acknowledged industry expert, Mr. Pechenik has been featured in numerous industry and business publications and conferences. Mr. Pechenik earned a Bachelor of Science degree in Chemical Engineering from the Massachusetts Institute of Technology.
Lili is the Founder of Atelier Partners, a bi-coastal advisory firm serving emerging industries.
Ms. Balfour earned her B.S. in Financial Management and International Management from Cal Poly, San Luis Obispo, where she found time to intern with Money Manager Jim Maino and polish her Japanese skills. Shortly after, her career brought her to Genesis Merchant Group where she worked on the private equity fund, Always Early, Often Wrong (AEOW), co-managed by Bernard Osher and Will Weinstein. While at SVB Alliant`s Technology Investment Banking Group, she worked on mergers and acquisitions involving both private and pubic companies, such as National Semiconductor, Cirrus Logic, PLX Technology, Allayer Technologies, Broadcom Technologies, Mattson Technology, and Sebring Networks. In addition, she has worked on debt financings for both non profit and for profit clients at Cain Brothers in San Francisco and New York. Upon building the infrastructure for Heller Ehrman Venture Law Group`s prospective client due diligence process, Lili spent her time traveling bi-coastally, working with Edison Group, Cisco Systems, and Lan-Mar Marina (a Traina Enterprises Inc. company) on acquisitions, which led to the eventual creation of Atelier Partners.
Now 10,000 terminals, 135 employees. We did everything wrong: refused VC; opened in 3 venues simultaneously. Offered a very low price. We do all asset classes all over the world. ASP Model.
At 14 I got my first stock tip, and that hooked me on trading. When I finished MIT, I saw there was an opportunity to set up an etrade-type system, focused on more complex assets. Started TechTrader: enabled trading of pharm ingredients, specialty foils, metals transportation, other non-standard items. We took a lot of investor money, and then 9/11 happened and we had to cut a lot. Our model made sense, but was counter to human nature: companies didn’t like putting sensitive data online. Biggest customers didn’t like using this, because they were used to getting 20% off from vendors on the phone.
YellowJacket was an attempt to implement the lessons learned. Parties can fully control whom they share information with. We started it when Enron blew up. Then markets picked up and we grew. Sold to ICE a year ago.
our stocks ranked 1 (at lowest level of ranking) tend to either blow up and go to zero, or they survive and go back up.
On TV, if you don?t curse or drool, they?ll invite you back.
The big problem in market analysis is that it?s often so subjective.
P/E has zero forecasting meaning for stocks going forward.
Look at cheap P/Es of homebuilders, banks in 2005-06.
I saw huge amounts of money being wasted in IT on Wall Street. We were a vehicle to much more cost-effectively allow a bank to do development.
For many banks for many years, we were the only service that put all of their systems on one platform.
Our market is OTC energy derivatives. I started my original company with a solution, but not a problem. That?s a very bad way to start a company.
I started because I had lunch with a friend who was a weather trader. He spent 2-3 hours a day copying price quotes from IMs into spreadsheets. I asked him if he could use a system that automated that. There was immediate value seen.
We raised $8m.
We financed ourselves thru our clients. They prepaid for 3-5 year deals. 1.5 yrs ago we reorganized our capital structure. We took 1 private equity investor, which we were more comfortable with than the VCs.
At TechTrader we raised $20m and had big board with investors with all sorts of different agendas. Pushed us to expand too fast. With Yellowjacket, we ended up taking no money, because Enron blew up when we were raising $. I?m glad that happened because it forced us to sit on the idea for a while.
1st two clients, we asked to prepay. It was just enough to pay for 2-3 people working on the 1st product.
Once we had some traction, we took $0.25m from angels. Once we had more traction, we could pick our preferred VC partners and do due diligence on them.
My partner was working at a firm which filed for bankruptcy. We bought all their IP, servers, etc. for $50K. $4m of development costs went into that. We self-funded for $2m, and when everyone?s wives screamed, we took in outside capital to hire more people. This kept us away from the VCs. Now the 3 partners still own 90% of the company.
In this environment, there?s a lot of great IP lying fallow in bankruptcy filings. If I weren?t too busy, I would be looking thru the assets of bankruptcy filings.
This is a great time to be hiring.
If you can?t field-strip a printer, you shouldn?t be an entrepreneur.
There?s so much peer pressure to be an ibanker; be a trader; etc.
We?re recruiting very talented people at a normal cost now.
Our financial advisor business manages about $100m . That subsidizes the new business.
We are highly global in our revenue splitup. NY is our cheapest location. For the past 2 years, our European people were twice as expensive as the NY people.
We had to be in Manhattan to be at center of tech people, salespeople, etc.
You have to be where client is.
We got a lot of help from SIA in finding good office space cheaply.
You?ll see a lot of startup brokerage firms as a result of this turmoil, and they?re going to need technology. This can only happen in NY.
20-30% of our sales are results of clients moving from one company to another.
Question: Where are opportunities?
Crisis of liquidity. More buyside to buyside trading, i.e., more exchange plays. This creates massive compliance risk. Do you realize we still clear in 3 days? That?s ridiculous.
FIX protocol is supposed to be a standard, but it?s not really a standard.
In life, nothing is normalized. This creates lots of opportunities to normalize data.
OTC trades are 8x volume of what?s traded on exchanges.
I really preferred the PE investors because they thought long-term, didn?t push us to do stupid things.
We closed $0.5m oversubscribed round in Oct-Nov, in teeth of market collapse. This shows that there is demand for worthwhile companies.
Definitely I?ve seen growth in forensic accounting firms.