Financial tech firms reboot
DataSynapse finds new market, away from Wall St. pain
Lisa Fickenscher
The days after Sept. 11 were the most difficult that Peter Lee had ever faced as the chief executive of his young technology company.
His firm, DataSynapse, lost four employees who were attending a conference in 1 World Trade Center when it was attacked.
As Mr. Lee struggled to cope with the human loss, he was also realizing that the 10 big financial services clients DataSynapse was counting on would not sustain the company.
"It was very clear to us the day it happened, and the following week, that all of our New York clients would have other priorities," Mr. Lee says.
DataSynapse is one of more than 2,000 tech companies that serve the financial services industry in New York City, providing mostly software. For much of this year, these software providers were among the few bright spots in the city's technology spectrum.
A rising star
Now, the future is uncertain for many of these small companies, which will have more trouble than large businesses in weathering Wall Street's sharp downturn. Some probably will go out of business. But DataSynapse's experience illustrates that being small is not always a liability. The ability to react to change quickly is sometimes more important than size.
"The financial services industry has taken some lumps," says Steve Brotman, managing director of Silicon Alley Venture Partners. "But companies like DataSynapse have the capability to turn on a dime."
Despite the slumping economy, DataSynapse was seen as a rising star this year. The company had chosen New York as its headquarters 18 months ago because it wanted to be near its future customers.
In May, the company secured $15 million in venture capital funding. Ten of the biggest banks were testing its software, which speeds up data computations.
DataSynapse recognized that the software might appeal to other industries as well. In June, it hired an executive to head up sales efforts in the energy sector, pursuing clients in the oil drilling, gas and coal industries.
Those efforts were only beginning. But after the World Trade Center attack and the chaos that followed, these initiatives enabled the company and its 30 employees to shift gears, fast.
Earning miles
Mr. Lee's team has been traveling to and from Chicago, Boston and even London, talking to financial services companies.
The company's executives also began scouring Houston for clients in the energy business, and have opened an office there. "We are in the mode of booking meetings and getting things done," says Mr. Lee.
DataSynapse changed its strategy quickly because its biggest clients didn't need its software, at least for now. In contrast, other tech companies are finding a growing appetite on Wall Street for their services or products, but they must move rapidly to meet the demand.
LoanX Inc., a 1-year-old startup that is developing software for underwriters of syndicated loans, is shortening the development schedule for its product debut.
The company, which helps underwriters evaluate credit risk, is largely owned by five big syndicators of loans, including J.P. Morgan Chase, Goldman Sachs, Deutsche Bank, Bank of America and Credit Suisse First Boston. These companies, according to Michael Rushmore, founder and chief executive of LoanX, say that managing credit risk is a priority, since the loan syndication market is so volatile.
"It's more important to get a good solution to the market now, rather than a great solution next quarter," says Mr. Rushmore.
Flexibility test
Ultimately, the biggest advantage that small technology firms have is their flexibility. "We have no choice but to be nimble and aggressive," says Mr. Rushmore.
Other companies are making quick judgments about what's possible in this market.
CapitalThinking, a 21/2-year-old software company that digitizes information, is planning for a longer sales cycle and lowering its growth projections, although it includes among its customers GE Capital and PNC Bank.
Even the most agile companies face an uncertain future in a worsening economy. There is no guarantee that interrupted deals can be revived.
Mr. Lee of DataSynapse expects his banking clients to resume testing the company's software in several months. Underscoring his point, he says the firm is not planning to move its headquarters, though it may open an office in Chicago.
For now, DataSynapse is homing in on its prospects in Houston. "The World Trade Center has forced everyone to focus on the opportunities that are most realistic, quickly," Mr. Lee says.
Sponsored Content: New Jersey beckons as New York City employers explore satellite office options