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Beware Venture Capitalist Advice

While writing a profile for Advanced Trading's upcoming Innovators of the Decade edition, one of our subjects said something truly fascinating. He gave us an inside look at how venture capitalists think and the advice that they give.

David Leinweber is considered to be the father of machine-readable news and one of the early pioneers of high frequency trading back in the days when it was medium trading, he jokes. He worked for funds, created small companies that became bigger companies, oversaw new technologies and now lectures at Caltech. He is also the author of Nerds on Wall Street and in his speeches manage to do the impossible: He discusses technology on Wall Street with humor and flair. He had a quant's brain with the timing of a Catskill comedian.

(Check out his take on the early days of technology on Wall Street here and try not to wish he was your high school social studies teacher.)

In the course of writing my profile I asked if Leinweber had any regrets. While CEOs are loathe to admit any hurdles or stumbles a long the way, David was honest. And revealing.

Me: So, do you have any regrets?

David Leinweber: Yes. When we started Codexa we did first version of the product in C and Perl (programming languages) on one PC under a desk. It ran Linux and it never crashed. We moved to Sun equipment when we were trying to attract venture capital funding in 2000.

The VCs said, "We put $10 million into a company that was valued $100 million." They said the value of a company was $1 million times the number of engineers inside the company. They looked at our company and counted five engineers and they said we needed to get more engineers.

I was sold on doing the project in Enterprise Java, which wasn't ready for prime time. So we moved from a stable machine under a desk and to a machine the size of a refrigerator in a restaurant and a data farm. Back then, Java was a standard and not a set of tools from Sun.

Had I not taken the bait on enterprise java the company would have been self-sustained. They wanted to be able to sell the company and sell it to someone else.

The lesson? Be careful about the advice from venture capitalists. You may be doing the heavy lifting but like a hungry realtor, they just want to flip the house at the best possible moment.

Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio

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