The federal government netted its biggest hedge fund fish yet when a jury found Raj Rajaratnam guilty of all 14 counts of conspiracy and securities fraud. Jurors deliberated the insider-trading case for weeks, after listening to damning testimony from Wall Street bigs such as Goldman Sachs Group Inc. Chief Lloyd Blankfein and former McKinsey & Co. director Anil Kumar. In the end, the government’s unusual wiretaps likely sealed Mr. Rajaratnam’s fate, as jurors repeatedly listened to more than 40 tapes of the defendant milking various industry players for inside information.
The Sri Lanka-born hedge fund executive faces as much as 25 years in prison; sentencing is set for July 29. Mr. Rajaratnam, 53, plans to appeal the verdict and will wear an electronic monitor during his house arrest in the interim.
At the peak of his career, the Galleon Group founder managed more than $7 billion and was revered on Wall Street. In his defense, his lawyers tried to convince jurors that Mr. Rajaratnam was simply well-researched and only moved on information that was publicly available. Prosecutors, however, painted the hedge funder as the very definition of an inside trader.
A Census official said a “processing issue” was one of many possible causes for a population undercount in the city—not that Tony Farthing, the bureau’s regional director, would confirm said undercount. He spoke at a City Council hearing in response to a Brooklyn councilman’s incredulity over Census-reported apartment vacancies in Bay Ridge. The city, which has yet to officially challenge the 2010 census count, hopes to reclaim 80,000 residents it says were missing from the rolls and thereby boost federal funding by $2.4 billion over the next 10 years.
Not only did Goldman get the heads-up that the Commodity Futures Trading Commission might soon charge it with civil fraud relating to its clearing services for a broker-dealer, it also admitted to receiving more subpoenas concerning its ill-fated mortgage product Abacus 2007-AC1. That piece of work has already attracted global scrutiny.
Uncle Sam wants to unload a thin slice of its 92% stake in American International Group Inc., offering 200 million shares in a sale that commenced last week. The government’s breakeven point is $28.72. Just 1.6 billion shares to go.
Daniel Brodsky was named chairman of the Metropolitan Museum of Art’s board. The developer admits he’s no expert when it comes to art, yet he was a driving force behind Lincoln Center’s recent renovations, and he’s a trustee of not only the Met but also the New York City Ballet and New York University. In his spare time, he manages 6,200 apartments in 68 Manhattan buildings.
Many Battery Park City residents are breathing sighs of relief after their managing agency agreed to cap the neighborhood’s total ground-lease rents at $525 million over the next 30 years. The agreement prevents projected hikes that could have cost the community $279 million more than that. A product of the 1980s, ground leases require tenants to pay a rental fee on the underlying city-owned land, in addition to apartment fees.
A version of this article appeared in the May 16, 2011 print issue of Crain’s New York Business.
Despite rumblings of a tech bubble, New York area funding for tech startups held fairly steady in the first quarter.
Some 69 companies in the New York area received more than $580 million in funding, according to a Friday report from PricewaterhouseCoopers and the National Venture Capital Association. Funding slipped 3% from the first quarter of 2010 but was up 6% over the fourth quarter. The number of deals was down 21% over the first quarter of 2010 and down 22% over the fourth quarter.
“Despite recent hype about both funding gaps and bubbles within the venture capital industry, the first quarter demonstrates an investment pace that is reasonable, rational and relevant to the long-term nature of our business,” said Mark Heesen, president of the National Venture Capital Association, in a statement. “What we are not seeing this quarter is just as critical as what we are seeing.”
In New York, startups in software and IT dominated funding in the first quarter, accounting for $198 million, or 34%, of venture capital dollars, according to the report. The life sciences sector, which includes companies specializing in biotechnology and medical devices and equipment, accounted for 33% of funding, or $190 million. Media and entertainment startups received nearly $129 million in funding in the first quarter; recipients there included Beyond Oblivion, a cloud-based music service that snagged a whopping $77 million in the first quarter—the most of any New York-based company—and question-and-answer website Stack Overflow, which received $12.3 million in funding.
David Silverman, managing partner for PwC’s New York emerging-company practice, said the average deal was high this quarter, reflecting a growing business savvy in New York’s Internet and tech sectors. He said business owners who may have developed two or three other successful tech companies since the 1990s are now bringing their experience to the field.
“What we saw 10 to 15 years ago in San Jose, we’re seeing now in New York City,” said Mr. Silverman.
The New York area still trailed California’s Silicon Valley and New England in tech investments during the first quarter, according to the PwC report. In Silicon Valley, 212 companies received $2.5 billion in first-quarter funding; in New England, 90 firms received $639.3 million.
But the Big Apple is gaining traction. According to a separate analysis from CB Insights, New York state received more venture capital dollars in the first quarter than Massachusetts, which due to its Boston tech scene has long been No. 2. New York brought in $379 million in venture capital in the first quarter, according to CB Insights, compared with $227.6 million for Massachusetts. CB Insights’ report includes five sectors: software, Internet, mobile and telecommunications, computer hardware and electronics.
“There’s a lot of optimism surrounding New York right now,” said CB Insights Co-founder Anand Sanwal. He noted that the city’s seed-stage startup accelerators, which help prepare young companies for evaluation by venture capital firms, are helping.
“They churn out some really interesting companies and entrepreneurs,” he said. “There’s a lot of momentum. The ecosystem just kind of feeds on itself.”
After judging ended and the dust settled Thursday night in Chelsea at the NYC BigApps 2.0 awards ceremony, one company emerged the “appiest” of them all: Roadify.com, a parking, traffic and public transportation real-time information application for mobile smartphones.
Mayor Michael Bloomberg presented the awards personally at the ceremony, held in the IAC building. Mr. Bloomberg announced during the ceremony that BMW had agreed to double all cash prizes for the winners.
The city’s Economic Development Corp. and the NYC Dept. of Information Technology and Telecommunications, who co-sponsored the contest along with BMW, handed Roadify a $10,000 prize, which, according to the company’s head of marketing and design Dylan Goelz, will go “100% into the product,” including readying the app for Google-based Android phones to augment their existing iPhone and text-message-based service.
“We were floored last night,” said a still out-of-breath Mr. Goelz. “We had literally no idea when we were called up on stage that we had won.”
Mr. Goelz, along with founder Nick Nyhan and software developer Ethan Arutunian, created the original app in November 2009 as a text-based Park Slope, Brooklyn parking finder. All the user had to do was text “Get” to the number provided, and a user who had just vacated a parking spot would text back the location of the spot.
Roadify quickly expanded to include crowd-sourcing social updates from on-the-spot commuters as well as real-time city traffic and transit data from the Metropolitan Transportation Authority and the NYCDOT—including buses and subway lines all over the five boroughs.
“We wanted to make an app for New Yorkers, and New Yorkers are inherently commuters,” said Mr. Goelz. “It’s a massive part of their life.” Roadify’s “mash-up” of real-time data and social updates allowed commuters to find anything from “crowd-sourced alerts and updates from other commuters about delays, to whether there’s a mariachi band on the third car.”
“The data is great,” he said, “but it’s the social element that will make commuting a bit more enjoyable.”
Simon Buckingham, chief executive of Appitalism, an NYC-based apps marketplace, said developers like Roadify have just started to realize the full potential of this “mash-up” of technologies. Roadify is “typical of the type of apps that are winning awards,” Mr. Buckingham said. “Utilizing the on-board capabilities of the smartphone, the GPS and mapping built-in—that is really a great service in my opinion,” he said.
Savvy advertisers have jumped on the app bandwagon, he said, because while “mobile advertising is only a billion dollar out of a $700 billion advertising industry,” sponsors like BMW know their core audience too well to let the growth opportunity of apps slip by.
“[BMW] understands something very fundamental,” said Mr. Buckingham. “The most engaged app consumer is the 25- to 35-year-old male or female with a graduate degree. The simple reality of it is that they’re realizing that this is an attractive audience. Their target market is there, and they’re trying to get ahead of the curve and exploit the intimacy and the location information of smartphones.”
The BigApps competition, only in its second year (hence the ‘2.0′), challenges programmers to develop mobile software applications that encourage users to access a wealth of publicly available city data. Though contestants had more than 350 city data sets to work from in 2010, provided on the NYC DataMine site—essentially double what they had in 2009—developer submissions dropped from 81 to 58.
“The Bloomberg administration has been working on [making city government more open] for nine years,” said Nicholas Sbordone, a spokesman for NYC DoiTT, which built and maintains the DataMine site. “This is the public’s data, and we want to keep on making it accessible for as many people as possible.”
An EDC spokeswoman said that transparency was only one goal of the contest, though. “The real goal is to support New York City’s tech sector,” she said.
The spokeswoman noted that last year’s BigApps winner, MyCityWay, had so far received millions in venture capital. The MyCityWay money included an initial $600,000 investment from the NYC Entrepreneurial Fund, which is managed by FirstMark Capital.
Mr. Goelz said that as a privately funded company, Roadify is “in the process of seeking capital now.”
In the meantime, he said, Roadify is “absolutely looking forward to working with the MTA” to coordinate a better overall rider experience. He said the app could help the transit bureau find out “everything from customer service to understanding where the most and least satisfied riders are. It makes it clearer for them and clearer for their customers.”
Aaron Shapiro’s work life is not simply paperless; it’s downright nomadic. The chief executive of HUGE, a digital marketing and design agency, doesn’t even have an office in the firm’s Brooklyn headquarters.
“I just have my laptop. That’s all I need, right?” he said from the company’s expansive Web design floor.
Mr. Shapiro’s overriding management directive: “Make something you love.”
His approach wins major clients. HUGE redesigned websites for CNN and Reuters and spearheaded the Web design of Pepsi’s novel Refresh campaign, which reallocated $20 million in funds intended for Super Bowl advertising to fund community initiatives.
Mr. Shapiro sold HUGE for close to $40 million to The Interpublic Group of Cos., a global network of marketing agencies, in 2008. The corporate backing allowed the married father of two to raise $10 million for a major international expansion, which started last year.
Adding to the string of achievements, Online Media, Marketing and Advertising magazine dubbed HUGE the social media agency of 2010. And Advertising Age recently named Mr. Shapiro’s firm to its A-List of hot agencies to watch, for the second straight year.
“Aaron’s incredibly driven and very, very relentless,” said Philippe Krakowsky, head of talent and strategy at Interpublic. “He’s always projecting himself to the next place.”
Indeed. HUGE had nine employees when Mr. Shapiro joined in 2005 as a business and strategy partner. By the time he became CEO last year, the firm boasted 300 employees and had offices in London and Brazil. Profits jumped by 50% in each of the past three years, topping $60 million in 2010. HUGE e-commerce platforms such as Target.com and JetBlue.com help generate some $12 billion in revenue for clients worldwide.
Next up: regional offices in Shanghai and Tokyo.
By Benjamin J. Spencer
Online grocer FreshDirect bagged a big ticket item Thursday, when it snagged a $50 million investment.
Long Island City, Queens-based FreshDirect and food retailer WM Morrison Supermarket, based in West Yorkshire in Northern England, announced Thursday that Morrison will invest $50 million in FreshDirect, kick starting the online food retailer’s planned growth and expansion outside the tri-state area.
FreshDirect would not immediately elaborate about which markets it is eyeing.
A deal between a New York company that specializes in sourcing and delivering fresh groceries and a supermarket chain across the pond may seem unusual, but FreshDirect said its unique e-commerce model has set the food retail industry abuzz.
“This investment is a clear validation of FreshDirect’s business model,” said Jason Ackerman, FreshDirect’s founder and chief financial officer. “It will help us expand capacity to support accelerated growth and geographic expansion. Also, the Morrisons team’s deep knowledge in food retailing will be valuable to the FreshDirect team.”
Under the terms of the deal, Mr. Ackerman said, FreshDirect will host a “multi-disciplinary” team of top Morrison managers who will be “embedded in FreshDirect” at the company’s headquarters. They will study FreshDirect’s methods for storing, packaging and delivering groceries and take the system back to London for their own use.
“What we learn from FreshDirect will be invaluable as we plan our own profitable e-commerce business for the U.K.,” said Morrisons Chief Executive Dalton Phillips, in a statement. Morrison’s investment represents about a 10% stake in FreshDirect; under the agreement, Mr. Dalton will also join the company’s board.
FreshDirect will also receive a minority interest in Morrisons’ planned online operations in London. Mr. Ackerman wouldn’t specify the value, saying it was “confidential.”
For a relatively new retailer, FreshDirect has endured its share of ups and downs. Just a few years ago, during the height of the recession, Crain’s reported on a company in crisis, almost buried in federal immigration investigations and state environmental fines. The company also battled against a strong union push.
But Morrisons’ strategic investment capped a three-year period a “20% growth rate annually” where the company ended 2010 with around $300 million in revenue, according Mr. Ackerman’s spokeswoman.
By 2006, Mitch Jacobs had already created two companies and spent 15 years building financial software for small businesses.
During those years, he had watched numerous credit-worthy Main Street businesses get rebuffed by banks because of what he calls an “effort gap”—the banks’ unwillingness to spend 80 hours of time on smaller loans worth $50,000 or less. The process hampered the small businesses too, which wasted months compiling information, only to be shut out.
Then Mr. Jacobs had a light bulb moment.
“I remember thinking, ‘This is not a capital-and-credit problem. This is an automation problem,’” he said recently. He was sure that online banking and accounting, paired with inventory software and online tax records, could be used to simplify the loan evaluation process. “It just had to be created,” he said.
Four years later, Mr. Jacobs’ initiative appears to have paid off. His small-business assistance website, On Deck Capital, announced Thursday that it received a $15 million vote of confidence from one of the nation’s leading corporate information technology investors.
SAP Ventures, a unit of business software giant SAP that invests in fledgling businesses, led On Deck’s latest round of financing. Leading the startup’s software platform is a free online tool that helps small business owners evaluate the strength of their credit, organize their business records and payments and apply for various loans from On Deck.
The average On Deck loan is for $30,000 and has a six- to nine-month duration.
Traditionally, Mr. Jacobs said, banks have used small business owners’ personal credit and real estate collateral to determine loan worthiness. “It’s ridiculous to take that kind of approach today, given the amount of information Main Street [businesses] are generating,” Mr. Jacobs said. Small business owners often carry a lot of debt.
The tools at OnDeckCapital.com help banks evaluate a firm’s financial soundness more accurately, he said. On Deck measures a range of data points pulled from a customer’s online bank accounts, tax records and inventory figures.
The strategy seems to be working. On Deck reached a milestone last year, when it hit the $100 million mark for total loans it’s given to small business. The company declined to disclose its revenue.
“It’s a huge market, and they’re growing unbelievably,” said SAP Ventures Managing Director David Hartwig, of On Deck’s success at reaching small businesses. “These people are reachable. And when you peel back the covers, it’s just a robust software platform.”
As part of the investment, Mr. Hartwig was named to On Deck’s board of directors and will advise the firm on strategy. He’s already one of the company’s biggest cheerleaders, mentioning On Deck in the same breath as Internet success stories like Groupon and Yelp. Groupon, a hyperlocal coupon site, recently raised the largest amount of venture capital ever for a startup: $950 million.
Part of that confidence may exude from the perceived reliability of returns. On Deck’s other venture partners include First Round Capital and Village Ventures. “The company has figured out how to loan to small business in a scalable fashion,” Mr. Hartwig said.
Small business is critical to helping the U.S. economy climb out of recession, said federal regulators at a Jan. 13 Federal Deposit Insurance Corp. forum in Arlington, Va. FDIC Chairwoman Sheila Bair said the devaluation of real estate due to the housing-sector drop threatened even stable small businesses, which often use housing equity as collateral to obtain startup loans. With new regulations, Ms. Bair said, “we’ve asked for examiners to focus on the borrower’s ability to repay, not on collateral declines.”
Hudson Yards Caf� Owner Jim Reardon appreciated On Deck when he applied for a small loan to keep his Manhattan bar and restaurant going during the slow season at the Javits Center, the West Side convention center which generates most of his business’ visitors.
“The loan was all based on volume,” he said, noting that On Deck spent about two weeks working with his credit-card processors to determine his business’ worth.
On Deck didn’t immediately disclose specific details about its vetting process. Mr. Reardon described the financing as “the best loan on the block.”
Emily Mendell of the National Venture Capital Association said an investment like the one SAP made in On Deck is “very typical.”
“Corporations are looking to invest in companies that touch their business somehow,” said Ms. Mendell. Rather than go to the expense of building and maintaining a research-and-development lab, she said, software corporations like SAP will invest in a smaller company that has created an innovative product.
PricewaterhouseCoopers and the National Venture Capital Association point to Thomson Reuters data indicating that the software industry in 2010 “recaptured its status as the single largest investment sector” for private venture capital, securing some $4 billion in funding.
In New York, the majority of software-related investments pour into Internet media and infrastructure, said David Silverman, a managing partner at PricewaterhouseCoopers’ New York metro emerging-company practice.
Companies like On Deck, which cross traditional sectors and span the software, Internet and IT sectors, are increasingly thriving, Mr. Silverman added. Consequently, corporate venture capital is jumping on board to share the wealth—and their experience—with startups.
While corporate investing arms like SAP Ventures represented only 8.7% of national venture capital spending in 2010, according to a PricewaterhouseCoopers report, Ms. Mendell said that is an improvement over recent years. The report found that last year’s corporate venture investment was the highest since 2007.