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Going Digital: Woodside Bullish on Securities Software
April 4, 2001
By Taran Provost

If Woodside Fund's assessment of the market landscape is correct, a huge investment opportunity could be developing in the securities industry, where many transactions are still being performed with aging analog technologies.

According to Daniel H. Ahn, partner with the Redwood Shores, Calif. firm, a major technical overhaul is about to take place on Wall Street, where securities frequently change hands via the telephone. "I see a huge opportunity in the securities and commodities dealers markets," he said. "Their business is basically analog, and that doesn't make sense. They will need robust technology platforms that will make all of the dealer operations electronic." Financial centers are likely to embrace such technologies, Mr. Ahn said, because they will save valuable transaction time.

Mr. Ahn said Woodside is looking to make investments in the area, but would not comment on the names of any companies. "It's a very interesting area and we're investing in it," he said.

The industry has been slow to modernize, Mr. Ahn said, because the two sides of the equation--securities trading and technology--are complex and hard to blend. As a result, an opportunity has arisen for startups that can pull the two components together and offer a new solution. "There haven't been companies that have two distinct sets of experts," he said.

Venture capitalists have been slow to fund such companies for similar reasons, Mr. Ahn said. "It's been ignored because [the business processes on Wall Street] are hard to understand," he said. "They're not simple by any means, but the opportunity is just enormous."

While largely ignored, a few firms have scoped the area out. Battery Ventures, a Wellesley, Mass.-based venture firm, for example, has invested in several such plays, including ePIT, a San Francisco-based developer of trading platforms, and Pedestal, a provider of an online service for mortgage trading located in Washington, D.C.

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