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Jacob Pechenik was attending a bachelor party in Reykavik, Iceland, chatting with traders about his company, YellowJacket Software, which offers a real-time communication and OTC market data platform. Matt Gorin, a general partner in New York-based Contour Ventures, overheard the conversation while standing at the bar.

By August 2006, Gorin was making an investment in YellowJacket (YJ) that also pulled in The New York Investment Fund and GreenHill SAP (Silicon Alley Partners). The New York-based start-up, which was founded in 2002, is gaining momentum in the energy derivatives market, where traders rely on instant messaging to disseminate quotes to one another.

"We liked YellowJacket. It's the last frontier in the energy market, using public Yahoo! Instant Messenger to communicate in a heavily brokered market," says Gorin. Unlike equity markets that are predisposed to electronic trading, the OTC world is more complex, individually negotiated and unstructured, he relates. YJ organizes the market data from those private conversations into a blotter, then automatically feeds the data into order-entry and trade-analysis systems, Gorin explains.

"People are able to build customized, independent views of the market," adds Pechenik, who got the idea for the company after watching a trader/friend cut and paste quotes from 30 IM windows into a spreadsheet.

Currently, 130 firms use the product, including big hedge funds, banks, and even utilities and power companies that trade energy products. YJ recently expanded into OTC crude and natural gas.

YellowJacket Software

Size of Investment: Unknown

Date of Deal: August 2006

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio