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Rating:VC Commits Funding to ETF Upstart Not Rated 5.0 Email Routing List Email & Route  Print Print
Wednesday, February 09, 2005

VC Commits Funding to ETF Upstart

Reported by Theresa Sim

ETF provider PowerShares has landed $10 million in venture capital funding from private equity firm FTVentures.

Bruce Bond, chief executive of PowerShares, plans to use the money to add more products, investment professionals and a sales force.

While Brad Bernstein, a partner at the San Francisco and New York-based private equity firm, declined to give the terms of the agreement, he did say that the capital "is for general purposes [and we're] in complete agreement about the right way to deploy the capital."

Bernstein expects, by the end of 2005, to see a "broad family of funds, and full sales force."

Development of additional products as well as sales is "equally important," said Bond, head of PowerShares. The provider will launch seven more ETFs on March 3, and on a regular basis thereafter.

So far, the provider has gathered $500 million in assets in four ETFs over the course of 17 months with "one man sales force" Bruce Bond, says Bernstein. The $10 million is PowerShares' first injection of institutional funding.

At least from Bernstein's view, the difference between PowerShares and its competitors is the former's products. "What distinguishes this company from its larger competitors is its strategy of providing products based on value-added indexes, including the 'Intellidex' indexes," added Ben Cukier, a principal at the PE firm.

That might not be enough in a market overwhelmingly dominated by the likes of Barclays Global Investors. Other competitors include State Street Global Advisors, Vanguard, Fidelity, Standard & Poor's and Rydex Investments.

Despite the competition, Bernstein remains optimistic about the prospect of PowerShares' success: "even if Barclays decides to offer some comparable types of products, they're not going to be identical." He added, "there are thousands are mutual funds ... [and there is] room in the market for all of them."

Bond noted that although BGI is a formidable contender, for BGI or other ETF providers to copycat PowerShares' product would undermine "efficient markets" mantra.

As such, FTVentures is not likely to provide an additional round of funding: "We think [the $10 million] is more than adequate and we don't believe that the company will need more," said Bernstein.

That's just fine with Bond, who commented that he doubts the firm will need more funding. In fact, FTVentures sought PowerShares out in 2003, after the provider launched its first ETFs, said Bond. Although

FTVentures typically invests in companies offering goods or services to the financial services sector. The company, which has offices in San Francisco and New York, is also an investor of financial advice provider Financial Engines.  

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