Bypassing Wall Street, Datek Online Holdings Corp., the nation’s fourth-largest Internet brokerage, has raised $300 million (US$) through private investments from investors including Microsoft co-founder Paul Allen and French luxury goods magnate Bernard Arnault.
Privately held Datek, based in Iselin, New Jersey, said proceeds would go toward hiring more employees, buying more equipment and creating more TV commercials in its bid to boost online trading.
“This is a transformative event for our firm that will have profound financial and strategic benefits,” said Edward J. Nicoll, Datek Online Holdings president. “The investment will enable us to realize the significant opportunities that exist in the online space today.”
The deal, for which specific terms were not disclosed, brings together capital from Bellevue, Washington-based Vulcan Ventures, Inc., Allen’s investment organization; Group Arnault, Arnault’s private holding company; and TA Associates, a tech investment firm.
Datek, which also owns Island ECN Inc., the second-largest E-stock trading system, would not disclose terms, but said each of the investors would hold a seat on its board of directors.
Datek’s recent troubles with the SEC — the company was fined $50,000 for falsifying financial documents and covering corporate expenses with customers’ money — did not appear to diminish the investors’ faith.
Arnault predicted Datek would thrive in the increasingly competitive bid for online investors. “We believe Datek has the best concept and the best technology to succeed in the fast growing on-line brokerage field and are pleased to…help the company continue to expand at the impressive pace achieved over the past few years,” Arnault said.
Competition for Online Traders
Datek, which has enjoyed phenomenal growth, says it has 250,000 active customers with a combined total of $7 billion in assets and clears over 500,000 trades a day, charging a flat fee of $9.99 for each.
The company will compete against other online brokers such as Charles Schwab & Co., which joined with Excite, Inc., on Monday to launch MySchwab, the first partnership between an online stock business and an Internal portal and search engine.
Schwab hopes the move distinguishes its investing site from the dozens of competitors. MySchwab features customizable news, weather and sports search services, e-mail, shopping and chats. Schwab said it plans to drive Web surfers to the site with a multi-million dollar nationwide advertising campaign, which started Monday with ads in the Wall Street Journal.
Another competitor, Donaldson, Lufkin & Jenrette, said Tuesday said it would sell 16 million shares in its DLJdirect online brokerage at $20 a share.