It has not been a good year for Information Technology (IT) in the financial services sector. In August 2007, one of Goldman Sachs’ hedge funds required a $3 billion (€1.9 billion) bailout from investors. The investment bank’s Global Equity Opportunities fund is a so-called ‘quant’ fund, which relies on computer models to direct trading activity. This and other quant funds were left exposed by a series of market swings, each of which their software predicted would occur only once every 100,000 years.

This is not the first time such funds have failed, and the result was less spectacular than the meltdown of another quant fund, Long-Term Capital Management, in 1998. The subprime mortgage crisis in the United States and the accompanying credit crunch, however, have made it rough going for banks and funds of all stripes. On 1 April, for instance, Swiss banking giant UBS announced a loss of $12.1 billion (€7.7 billion) for the first quarter of 2008.

The turbulence in the banking industry has also reduced the number of IT jobs available at banks themselves. ITJobsWatch, which tracks IT positions posted to UK job boards, shows that the number of software development and other IT job listings which referenced “banking” in Q1 2008 was down 35% from Q1 2007. This is set against an annual drop of just 6% in the number of UK IT jobs across all industries.

Under these circumstances, startup companies which sell IT software and services to banks and other financial institutions would appear to have some very long sales cycles in front of them. Yet several European startups are tackling the financial services market, and attracting the attention of contrarian venture capital investors as they do it. The reason is that financial services firms stand to save cash and other resources by adopting IT solutions in several key categories.

The first category is regulatory compliance, a task which the finance industry must fulfill and with which third-party solutions can assist. Two European compliance software companies have received venture capital investment in the past six months: Israel’s Dynasec, which raised its first round of funding in October 2007 from Credit Suisse, Merrill Lynch Investment Bank and Deutsche Bank; and London-based Complinet, which raised a fourth round totaling €23.5 million from Fidelity Equity Partners on 18 March. Dynasec offers an on-demand software platform to manage internal procedures for corporate governance and regulatory compliance. Complinet’s solution keeps financial services firms abreast of regulatory changes around the globe.

Banks and other financial services firms can also trim costs by outsourcing aspects of their IT infrastructure. Luxembourg-based Atrium Network, which raised its first round of VC funding in Q4 2007, provides hosted, secure network connections between financial firms. The company claims that customers save over 60% by using Atrium Network’s solution instead of building their own extranet. On 1 April 2008, Atrium’s CEO told Library House that the company would seek a second round of venture funding within 12 months, with a target size of €10-€20 million.

Finally, if funds are to lose money – a common scenario in these turbulent times - it is better at least to lose smaller sums. FinAnalytica, a Seattle startup with research & development in Bulgaria, produces a software package called Cognity which helps investors manage their portfolios. Cognity differs from competing products by offering a more realistic measure of an investor’s downside risk. As an investor, predicting how much a fund is likely to lose in a volatile market can help avoid costly mistakes – just ask Goldman Sachs.

Icera, the UK-based fabless semiconductor company, has raised $40m (€25.4m) from Tudor Investment, Accel Partners, Atlas Venture, Amadeus Capital Partners, Balderton Capital, and 3i. Icera develops low power and high performance software defined wireless chipsets for the mobile broadband device market. The round of funding follows the company's Japanese launch of its HSPA product.

Tideway Systems, the UK-based developer of IT automation software, has raised $27m (€17.2m) in a series C funding round led by Scottish Equity Partners. Tideway’s software is able to continuously map the relationships, and dependencies between, business applications and a company’s physical and virtual infrastructure, allowing the company to better manage change, cut costs and reduce risk. The funding is to be used to increase Tideway’s customer base, expand its partnership ecosystem and further develop its products to meet demand for data center optimisation.

Imperva, the Israel and US-based developer of software for application data security, has raised $20m (€12.7m) in series D funding from Meritech Capital Partners, Accel Partners, Greylock Partners, US Venture Partners, and Venrock Associates. Imperva has developed the SecureSphere, a data security and compliance tool which offers users risk management, real-time protection and activity monitoring of databases and business applications. The funding is to be used as expansion stage capital to allow the company to address the growing demand for application data security products.

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Utarget Networks, the UK-based online video advertising network, has had a majority stake acquired by FOX Networks and will be rebranded as Utarget.FOX. Utarget provides an advertising network, placing full screen adverts on more than 630 of the UK’s top-tier websites, and post acquisition will work with the Fox Interactive Media Audience Network pursuing network advertising relationships with News Corp. Phil Cooper will remain as chief executive of the company.

Oxford Diffraction, the UK-based developer of analytical instrumentation for X-ray crystallography, has been acquired by Varian, for about $37m (€23.5m) in cash and assumed net debt. The deal includes financial performance-based extra purchase price payments up to a total of $10m (€6.4m) over the next three years. Varian is a US-based supplier of vacuum technologies and scientific instruments, and the acquisition is part of its plan to strengthen its collection of information-rich detection products.

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Silicon Line, the Germany-based fabless analogue IC company, has appointed Juergen Ruprecht to the position of chief executive. Mr Ruprecht has over 25 years’ experience in the semiconductor industry and prior to joining Silicon Line he was vice president, systems development at Silicon Image, and before this was chief executive at sci-worx.

BullGuard, the Denmark-based developer of internet security software, has announced that its chief executive, Heinii Zachariassen, will be stepping down from his position after five years in the role. During this time the company grew from three to 100 people and doubled its revenues annually. Mr Zachariassen departs as the company moves into profitability.

Nero, the Germany-based creator of “liquid media technology”, has appointed Udo Eberlein to the position of chief executive. Prior to this Mr Eberlein was Nero’s chief operating officer where he was responsible for year-on-year corporate growth, as well as the signing of key OEM agreements and technology partnerships. Mr Eberlein replaces Richard Lesser who in turn takes the role of chairman of the company’s supervisory board, replacing Jim Corbett.

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Atrium Network, the Luxembourg-based provider of intranet and extranet solutions to the financial industry, has informed Library House that it will be seeking funding of between €10m and €20m in 12 months’ time, to be used to grow the company. Emmanuel Carjat, chief executive, told Library House that he expects the company to exit in five years, preferably via a trade sale. Mr Carjat also stated that he expected the company to have projected revenues of between €4m and €5m by the end of 2008, and for it to achieve profitability in 2009.

GomSpace, the Denmark-based developer of technology for use in satellites and space applications, and in industrial automation, has informed Library House that it will be seeking funding of between €400k and €500k in December 2008 which will be used for technology development. Lars Alminde, managing director, stated that he expects the company to maintain its current structure in the future, but for it to spin off daughter companies, each with its own associated intellectual property, in the next two to three years.

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