I can still recall my first days at then-Risk Waters Group in 2000 as a greenhorn researcher working on Risk magazine and FX Week, trying to quickly learn new industries and lingo, while at the same time trying to hide my inexperience. One of my earliest interviews for FX Week was with the chief executive of a startup software company then based in Israel, which was trying to make a name for itself in the derivatives pricing business.
That startup was the early SuperDerivatives, which Intercontinental Exchange just announced it will buy for $350 million. Like SuperDerivatives, ICE was only founded 14 years ago, yet has surpassed rivals with much grander legacies, culminating in last year’s acquisition of NYSE Euronext. I wish I could say that 14 years ago I immediately recognized where SuperDerivatives was headed. And that I’d bought stock in the company—and in ICE. Or, for that matter, another company still in its early teens, Markit, which recently completed an IPO on Nasdaq.
To be fair, the experience behind these companies belies their adolescent ages: SuperDerivatives’ CEO David Gershon spent years on Wall Street and in London trading foreign exchange options, during which time he realized that the market didn’t know how to accurately price derivatives. Eureka! From this gap in the market SuperDerivatives was born.
Meanwhile, ICE CEO Jeffrey Sprecher has many years’ experience of derivatives and commodities, having served as president of power plant developer Western Power Group before buying the Continental Power Exchange in 1997 and forming ICE in 2000. And Markit CEO Lance Uggla spent 15 years in sales and trading roles at CIBC and TD Securities struggling with entity data management issues before creating Markit and growing it to the provider of market, reference and index data that it is today.
Not to belabor the point (see also last week’s online-only column about how “old dogs” can teach the rest of us some “new tricks” of their own), but it’s this experience that (a) gives people the understanding of an industry to the extent that they can identify its weaknesses and shortfalls, and (b) gives them the knowledge and heft to pull off taking a startup to a success story. Take, for example, SR Labs, a relatively small provider of low-latency market data platform and feed handler technologies that nevertheless last year raised $53 million in funding from private equity firm Insight Venture Partners (IMD, Jan. 10, 2013) and more recently acquired the Wombat data platform and feed handler business from ICE-owned NYSE Technologies (IMD, June 18): When CEO Srinivasan Ramiah decided to become chairman and split his time between India and New York, the company sought out an experienced industry CEO to take his place, and appointed Richard Korhammer, an industry veteran best known for founding trading technology and data provider Lava Trading to run the newly expanded business. And let’s not forget the experience of one Michael Bloomberg, who last week officially returned to the helm of the company he founded.
Indeed, there seems to be a growing appetite for investment and expansion in the data industry, perhaps reflecting more favorable economic conditions tthat are more conducive to growth—both of companies themselves and their benefactors’ investments. For example, Swedish startup newswire Finwire recently sold a 20 percent stake in its business to a private equity firm to fund plans to expand its business beyond Sweden into other Nordic countries and Europe.
Of course, these are the success stories. For each of these, there are surely many expensive failures (such as Warburg Pincus-backed real-time fixed income pricing startup Benchmark Solutions) as well as initiatives that don’t make it this far—especially those lacking the years of experience described above. After all, what could possibly go wrong with giving “teenagers” enormous amounts of cash? Who’ll be the Justin Bieber of market data?
Bryan Harkins joins to discuss how the CBOE-Bats integration is going and plans for the exchange operator going forward. Anthony and James talk about the SEC hack and Esma's potential new powers.Subscribe to Weekly Wrap emails