I love writing about startups, and as we are reaching the finals of theInnotribe Startup Challenge at Sibos in Osaka, I dedicate an entry on this blog to each of the winners of the regional challenges.
Each one has a story to tell. As story of overcoming business difficulties, funding issues, dealing with personal hardship. A story of how passion, patience and perseverance have won over many obstacles.
So, here’s the story of OpenGamma, a startup focusing on financial risk analytics and which believes, as I profoundly do, that the open source approach to software is the most progressive and efficient approach in our hyper-connected world. I already wrote about open sourcing in the financial domain as a bold innovative move (see the story of Allevo). It is also the story of three entrepreneurs who have spotted an opportunity while working in financial institutions, and decided to do something about it.
OpenGamma was one of the winners of the Belfast regional showcase of the Innotribe Startup Challenge. We will thus see them, along with 14 other startups, in the upcoming finals at Innotribe@Sibos in Osaka (29 Oct- 1 Nov, 2012), which promises to be amazing (register here to participate to Innotribe@Sibos). I’ve met Kirk Wylie, CEO of OpenGamma, and asked him to contribute his story and the story of OpenGamma for this blog.
Giving the floor to Kirk.
The idea of OpenGamma came from a need I noticed while working in the risk and front office technology for financial services firms.
My job was building generic infrastructures, but infrastructure for which there wasn’t a viable commercial offering. With financial services firms looking for cost reductions in every part of their operations, it seemed absurd that most of their IT budget was spent on building and maintaining expensive in-house systems that didn’t hold any proprietary value to the company. Trading and risk analytics systems are plumbing; as long as it works you shouldn’t notice it
So why should every firm build their own from scratch? Why shouldn’t there be an open source solution out there available to all?
This thought triggedred an email to the other two co-founders, and the idea for OpenGamma was born. After the credit crunch, Jim Moores, Elaine McLeod and I set out to turn our vision of a single unified platform for analytics across financial services firms into reality. We were frustrated with the state of financial technology, and we wanted to change it.
“Is anyone going to buy this?”
In building our flagship product, the OpenGamma Platform, we’ve taken all the lessons that the combined team has learned working in hedge funds and investment banks, as well as pure tech firms outside financial services.
From the very beginning, we also dedicated a lot of time to grassroots market research. We met with people in technology, on the trading and risk desks, and in senior management, to talk about their experiences with analytics and risk technology. We wanted to build something that technologists would love to deploy, end users would love to use, and procurement departments would…well, accept.
When we got to the point where we had people willing to go on record saying “If you build what you say you’ll build, and you have the business model you say you will, we’d buy it”, we realised it was time to start building.
Defining open source
One of the most common questions we get is: “What do you mean by open source?” We use the term open source in its full sense: all code freely downloadable online, along with full documentation, user forums, bug tracking, and so on. There aren’t any catches here. To date, every component that we’re legally allowed to release under an Open Source license has been.
However, although our approach is radical in the industry, our goal was never just to build open source technology. We wanted to build the best platform for financial analytics and risk management possible. We’ve released it under an open source license because that’s what the market told us they want.
In the past, the industry has had three choices: buy a traditional, siloed trading system and spend years trying to get it to do what end users wanted; pay for an expensive, opaque external service; or build everything from scratch. With choices like that, it’s no wonder the preferred choice has been to build from scratch. Over and over. Within the same firm, across firms, developers keep building the same components because vendors haven’t given them what they need.
These traditional choices don’t work anymore.
Of course, open source software has often been championed as the low-cost option. While it’s by no means free, it allows firms to focus their IT effort on what’s specific to their trading strategies, which is perhaps only 10-15% of the overall technology stack. Allowing our clients to do this type of budget optimization has been one of our main goals in building OpenGamma.
When everyone knows what’s going on under the hood, users can feel confident in trusting the results that they get out of the system—and not just take a vendor’s word for it.
Investors with a shared vision
We knew what we wanted to build, but we also knew it was a massive undertaking. How would we actually finance it?
While I’m generally in favor of bootstrapped business models for most startups these days, we knew that we were building something far too large to be done in that fashion. The sheer scope of what we needed to present as a minimum viable product meant that we needed external capital to get started.
When I first moved to the UK in 2004, I’d met with Bruce Golden and Kevin Comolli of Accel Partners. In 2009, when we decided to launch, I knew they would be perfect partners in building OpenGamma. Accel believed in our vision, we raised a Series A round from them, and Bruce joined our board.
We’ve since raised two additional rounds: Series B, led by FirstMark Capital in 2010, and Series C in August 2012, led by ICAP plc. Without investors who share our vision of radical disruption in the quantitative finance market, there’s no way we would have been able to build a system as comprehensive as the OpenGamma Platform.
We are now moving our first customers from evaluation into full production installations. This is perhaps our most important milestone to date: some of the largest, most sophisticated capital markets participants are using our technology to manage some of the most complex derivatives portfolios in the world. Having these companies as clients is the strongest possible indication that our software works.
As with any open source project, remaining independent, and truly open, is paramount to us. Customers greatly value the neutrality and transparency that open source players contribute to the industry. We need to continue being extra vigilant not to let them down.