Financial innovation platform company Exponential Exchange recently announced the successful closing of an oversubscribed $7.4 million seed funding round led by MaC Venture Capital to continue building a suite of financial instruments designed to bring new risk-management solutions into the automotive ecosystem and other industries with underserved asset classes.
Even though industries like agriculture, energy, and manufacturing have long been able to hedge against price risk by using derivatives, this ability has never been available to auto fleet owners and insurance companies. And Exponential is on a mission to change this by creating a set of financial instruments that would enable rental car companies, auto insurers, and auto lessors to transfer their financial exposure to other market participants – the first of many industries Exponential plans to serve with this ability.
The company recently launched its initial product, the Exponential Used Vehicle Index, designed to offer an efficient and effective method for tracking used vehicle values using best-in-class data sets and modern data science techniques. This is the first benchmark designed and built to serve as an underlying instrument for hedging and trading used vehicle market values. And the creation of such derivatives is the next step in Exponential’s plan.
Other investors in the round include Autotech Ventures, an early-stage venture capital firm to solve the world’s ground transportation challenges with technology, and Avanta Ventures (the venture capital arm of CSAA Insurance Group). This funding round also includes participation from several other investors from the automotive, finance, and derivatives trading ecosystems.
The company is now focused on cultivating over-the-counter (OTC) trades as a proof of concept while building the market architecture and engagement required for futures trading. The result will be a suite of derivatives products that are cash-settled against the Exponential Used Vehicle Index. And this will allow both parties in a vehicle derivatives contract to effectively hedge against the inherent volatility in used vehicle depreciation, which is a significant problem for rental car companies, auto insurers, and lessors.
Exponential Exchange has now raised $8.8 million in total, including an earlier convertible debt funding round of $1.4 million. This new funding round will enable the company to execute on its plan to pilot multiple OTC transactions while building the infrastructure required for exchange-traded futures.
KEY QUOTES:
“Exponential Exchange is pioneering risk-mitigation tools in auto that have been standard in other industries for decades, unlocking unprecedented opportunities for companies and market participants across the vehicle ecosystem. We believe that these solutions could create a new multibillion-dollar opportunity, and if there is a team that can make that happen, it is the Exponential Exchange team, so we are very excited to partner with them.”
— Burak Cendek, partner at Autotech Ventures
“Pioneering new financial markets involves great complexity and rigor. Having investors and strategic partners connected to each side of our multi-sided market is invaluable and will help us kickstart trading and build liquidity. The fact that our seed round was oversubscribed amid an extremely challenging fundraising environment is a testament to our vision and ability to execute.”
— Ryan Naughton, CEO and co-founder of Exponential Exchange
“The transportation revolution has created a fascinating array of new mobility choices for consumers, but the companies who own, finance, and insure these vehicles have limited options in managing the elevated levels of risk that come with rapid technological advancements. Exponential is on a mission to create a more stable environment for the companies driving some of the world’s most ground-breaking innovations in auto and beyond, and we look forward to helping them launch a full array of risk management tools, similar to ones that exist in other industries.”
— Marlon Nichols, founding managing partner of MaC Venture Capital
“Current risk-mitigation approaches are inefficient for both automotive fleets and lessors who want protection against market values declining more than expected, and for insurers who want to protect themselves against volatile vehicle replacement costs. Exponential’s products address both of those market needs.”
— David Li, senior principal at Avanta Ventures
