Capital Raising For The Next Leg of Growth

Bank Technology News
1/2008

Byline Article from David Linch, Managing Director

Seemingly impervious to tumultuous market conditions, the financial services sector continues spending on information technology. Investment in new and replacement technology by retail banking, insurance, securities and investment firms is expected to grow at a rate of 8.9% between 2007-2010, according to TowerGroup (Source: Computer Weekly, April 3, 2007). Spending is unlikely to ebb, as financial institutions face an IT dilemma: innovate around burdensome legacy programs (often defined by disconnected data and flawed process architecture), consolidating acquisitions or take a strategic path toward transformation/competitive advancement.

Such favorable industry dynamics (along with low barriers to entry) encouraged many tech companies to enter the fray over the past five years. In doing so, small start-ups thrived on niche technologies highly prized by financial institutions and aggregators. Rapid growth led to complacency, as small techs based success on free cash flow, great management teams and satisfied investors. Little emphasis was placed on investing in infrastructure necessary to sustain the company as it reached a growth plateau. Without such infrastructure, the heady growth trajectories will begin to tail off, service problems may crop up and revenues will likely falter. At this stage, it is too late to get attractive capital financing or fairly-valued buyout offers. To avoid this predicament, management teams need to determine growth demands far in advance, focusing not only on how to market a niche technology, but more importantly, how to obtain sufficient capital to leverage the financial services technology and related business infrastructure before it is needed.

These excerpts and hyperlinks are solely for reference only. The excerpts are merely summaries of certain statements or discussions in the research reports to which they and the associated hyperlink refer. They are not a complete description of the securities, industries, markets or developments referred to in the material. The views expressed in these research report excerpts and hyperlinks were those of the research analyst as of the publication date of each report and are subject to change without notice. Such information is believed to be accurate on the date of the issuance of the research report, and all expression of opinion apply on the date of issuance of the report. Reference to these excerpts and hyperlinks do not mean or imply that any such information or opinion remains current at any time after the stated date of the report.