FXall Gets First Infusion of Outside Capital
July 24, 2006
Online foreign exchange portal FXall said it has sold a significant minority ownership interest to Technology Crossover Ventures (TCV), a venture capital firm with a reputation for steering high-tech companies to higher-growth stages and often to initial public offerings of stock.
With an investment of $77.5 million, expected to close in August, TCV will be the first FXall shareholder that is not one of its liquidity-providing banks. The ownership consortium currently consists of 17--including Bank of America, Citigroup, Credit Suisse, Goldman Sachs & Co. and Morgan Stanley--of the network's more than 60 liquidity providers. The six-year-old company, incubated within JP Morgan Chase & Co., had two banks and two customers when it began trading in May 2001; as of last month its average daily volume was $41 billion, and the system has peaked above $50 billion. The second-quarter total of $2.4 trillion was 50 percent more than in 2005.
Philip Weisberg, CEO of New York-based FXall, said in an interview that the TCV investment is "very good news," in that it allows the current, strategic investors to maintain their strong ownership ties while bringing in the expertise of "people with a reputation for helping growing technology companies to achieve their potential."
He added, "Now it makes sense to diversify the ownership stricture and have access to people experienced taking growing tech companies to the next level, which is why we chose to work with Henry Feinberg and Robert Trudeau"--partners at TCV who will be joining the FXall board. The Palo Alto, Calif.-based TCV, which has a New York office, has $4.7 billion under management and has invested in 138 companies, 38 leading to IPOs and 29 to strategic sales or mergers. The portfolio includes major brand names such as CNET, Expedia and Netflix as well as institutional stock trading platform Liquidnet Holdings, customer relationship management vendor Onyx Software Corp., options-trading software developer thinkorswim and securities custody and clearing specialist Penson Worldwide, a recent IPO.
"FXall is unique in the online FX space," said Trudeau, a former principal of General Atlantic Partners, where he managed such financial services portfolio investments as Archipelago Holdings, now part of NYSE Group, and risk management technology innovator RiskMetrics, also owned by TCV. "We have been following [FXall] for a number of years and have been impressed by its performance and business model. FXall's diversified client base and comprehensive service offering make it well positioned to benefit from further growth in online trading," Trudeau said.
FXall is one of a gradually dwindling number of surviving technology platforms in the biggest of all financial marketplaces: an estimated $2 trillion or more changes hands in daily currency trading around the world. Electronic trading networks are vying to control various segments or niches in that vast pool and then to build on that foundation by attracting market shares beyond their current, fractional amounts. FXall gained traction catering to the needs of both liquidity-providing banks and buy-side or corporate customers with which they maintain valued relationships. Trade execution is central to the offering, but CEO Weisberg pointed out that "we also spend a lot of time on what happens pre-trade and post-trade," ensuring fully automated straight-through processing and best practices that integrate effectively with customer workflows.
Recent months have seen an acceleration of interest and investment in currency trading systems and technology. In April, London-based interdealer brokerage Icap agreed to acquire the bank-consortium-owned EBS spot trading platform; the deal was completed in June for $876 million. In May, Reuters, EBS's top competitor in the spot FX market, announced an agreement with the Chicago Mercantile Exchange to form FXMarketSpace, a global joint venture with a central clearing mechanism. The venture last week named more than 20 "early adopter" firms and obtained Reuters shareholders' permission to go forward, with launch planned for early 2007.
