Egar Technology secures $2.5 million in new funding

Egar Technology, a risk management systems vendor set up to hedge funds, banks and commodity risk managers, has secured $1.5 million in funding from World Bank private sector investment arm, the International Finance Corporation (IFC), and $1 million from Russia-focused private equity investor Delta Capital Management.

Egar, whose strengths lie in equity derivatives and a buy-side risk management platform called Focus, approached the IFC a year ago, according to company officials. Moscow-based Delta Capital, which has $200 million invested in Russia and had invested with IFC before, joined the deal later.

Carlos Botelho, investment officer in the information technology investment group at the IFC in Washington, DC, declined to detail the terms of the deal, but said he expected Egar Technology to "scale significantly" in the next couple of years.

IFC's public mission is to promote private sector development in developing countries, but according to Botelho, the return on the IFC's equity investment in Egar is comparable with current expected returns elsewhere in the private equity market.

Botelho said the IFC had reviewed investment proposals from other Western companies with technology production sites in Russia, but preferred Egar because its Russian operations were focused on development and not primarily on the outsourcing of activities such as computer coding, which has become an increasingly popular alternative for Western companies to source from developing countries with highly educated workforces.

The core of Egar Technology's Russian operation, which today numbers 125, or about 90% of Egar's staff, began after the Russian debt default and ensuing economic crisis in 1998. Egar co-founder and current chief technology officer Gena Ioffe, a mathematics and computer science graduate of Moscow State University, was then working for risk management systems vendor FNX. Ioffe hired technical staff freshly laid-off from the crisis and set up a venture to conduct low-cost contract work for FNX. In March 2000, Ioffe took his 15-person office and joined with current Egar chief executive Ravi Jain to form Egar Technology. Today, Egar sales and marketing is based in New York and development based entirely in Russia.

Users of Egar's Focus systems include Fimat's energy and FX derivatives areas, Carr Futures metal derivatives, currency overlay manager FX Concepts, Dutch bank ABN Amro's energy derivatives operations and Polish copper and silver producer KGHM.

Jain said venture capial funding was extremely difficult to find now. He said an attraction of IFC and Delta Capital was that they could invest in Russian economic activity - Egar's development lab - without exposure to sovereign risk. The IFC's Botelho downplayed that attraction, however.

Jain said he would use the new funds to add more over-the-counter equity derivatives coverage to Egar's current system and more front-to-back office capability. Jain said he is considering entering the credit derivatives risk management market.

He added that the new money would also be used to expand Egar's sales and marketing operations. Egar will open a London office in two months and add a sales team in Southeast Asia. "We're seeing a re-emergence of small and mid-sized banks looking for trading and risk systems there," said Jain.