IEX: Bringing Fairness Back To The Markets

Today Sapphire Ventures announces it purchased a minority stake of IEX, a New York-based company that has built a simplified and transparent market designed to eliminate conflicts currently present in equity trading. Renowned in Michael Lewis’ bestselling book, Flash Boys, about the automation of the stock market and the inequity of some forms of high frequency trading, IEX is on a noble mission to bring fairness back to the markets. Specifically, the company seeks to remove the timing advantages some traders utilize to benefit from short-term trades at the cost of those on the other side of the trade, often investors and issuers themselves.

We are extremely excited to be involved with this rapidly-maturing company and even more thrilled to partner with such a talented and passionate team as it challenges the status quo in equity trading markets. Check out this CNBC video if you need proof of just how strongly this team feels about bringing fairness to the markets.

So why did Sapphire Ventures want to become a shareholder of IEX? Simple really. IEX is disrupting one of the most longstanding, traditional and powerful marketplaces in the world, and we couldn’t help but want to be alongside the company as it makes history. Specifically, IEX:

  1. Targets a centuries-old market whose technological advances have been outpaced by the world around it. As investors with deep software roots looking at a trading exchange, we thought we’d be impressed by the algorithms behind the solution, but what we found on the software development side — the underlying modular and innovative platform — blew us away. IEX’s platform is built to scale and allows for rapid enhancement of services and expansion into new markets if/when the company decides to make those moves.
  2. Seeks to bring fairness back into a vertical that has allowed the few to prey on the many. While fairness doesn’t always make money, this solution certainly does. We love that IEX CEO Brad Katsuyama and his team are eliminating the advantages that others have over a common trader and redistributing this wealth to the true participants in a given transaction. Who doesn’t like a Robin Hood story?
  3. Is growing rapidly and continuing to push deeper into the exchanges ecosystem. IEX recently rose up to rank fourth largest amongst Alternative Trading Systems (ATS), as ranked by FINRA. This puts the company ahead of ATS’s run by large financial institutions such as Goldman Sachs, JP Morgan and Bank of America, impressive for a market center that’s only 1.5 years old. In fact, according to Rosenblatt Securities, IEX had one of the fastest starts by a dark pool on record (source: Wall Street Journal).
  4. Brings an enterprise solution to a market that moves trillions (with a capital “T”) of dollars a year. We like to get involved with companies going big in very large markets. We also like to be involved in situations where we think our enterprise expertise will allow us to add value. U.S. equity trading markets are measured in billions of dollars, and the value IEX provides is applicable to markets internationally as well. Additionally, while much of IEX’s impact on trading has been framed in an investor (you and me) context, it’s applicable to enterprises as well (think of more efficient stock buy-backs as just one example).
  5. Is run by an unparalleled team that has lived it, breathed it and decided that there must be a better way. If you’ve read Flash Boys, you know it’s a special group of folks that founded IEX. They are passionate and on a mission to change the status quo. What we appreciate most is their history of working together successfully, mostly within RBC’s trading business, and their immeasurable desire for improving the trading experience for market participants. This fire powers the IEX engine and is a very powerful draw for truly exceptional talent, which IEX has attracted across technology, operations, legal and regulatory spectrums.

In combination, these characteristics are the clearest indicators that we are working with a solid team and a company on the precipice of making huge waves in an enormous market. We couldn’t be more excited to welcome IEX to the Sapphire Ventures family and look forward to helping to build a successful company that we believe will forever change the way in which the financial markets operate.

Read IEX’s press release about this equity purchase here.


Disclosures:

The information set forth herein is not intended to constitute investment advice and under no circumstances should any information provided herein be used or considered as an offer to sell or a solicitation of an offer to buy an interest in any investment fund managed by Sapphire Ventures. Sapphire Ventures does not solicit or make its services available to the public and none of the funds are currently open to new investors. Past performance is not indicative of future performance.

The portfolio companies referred to above do not necessarily represent all of the investments made or recommended by Sapphire Ventures, and were not selected based on the return on Sapphire Ventures’ investment in them. It should not be assumed that the specific investments identified and discussed herein were or will be profitable. Not all investments made by Sapphire Ventures will be profitable or will equal the performance of the companies identified above.