Good morning, Term Sheeters. Fortune’s Declan Harty here, filling in for Jessica. Today: The story behind one stock exchange operator’s plans to push into digital assets.
Wall Street’s “Flash Boys” exchange is finally planning to venture further into the world of cryptocurrencies.
Eight years ago—before Binance, before the Ethereum blockchain, and even before Bitcoin broke $1,500—IEX Group quietly discussed whether to enter the fledgling crypto markets, CEO Brad Katsuyama tells Fortune.
The upstart trading venue’s story had played a featured role in Michael Lewis’ 2014 best-seller “Flash Boys,” and soon after, the exchange was thrust into the national spotlight. Katsuyama was everywhere, from conferences to Congress to CNBC. The company raised $75 million in new funding. And its lawyers were even beginning what would become a two-year-long process to turn IEX’s private trading venue known as a dark pool into a U.S. stock exchange on par with NYSE and Nasdaq.
Unbeknownst to the public, IEX was, all the while, also fielding questions about capacity and technical issues in the burgeoning crypto market. Just a few years old, digital assets were largely dependent at the time on “customer-facing apps that weren’t built to facilitate robust trading markets,” Katsuyama says. The need for a more robust financial infrastructure in crypto was quickly becoming apparent. So, the exchange’s executives began to ask themselves whether IEX could get involved somehow with a unique offering. But the company opted to stay the course with just one silo dedicated to the U.S. equity market, partly in fear of over-stretching itself.
Katsuyama and the IEX team never stopped looking for novel ways to get into crypto, though. In 2021, the exchange runner joined the Pyth Network, a Solana-built market data project. And today, IEX is beginning to plot a grander entrance into the digital assets market with the help of its newest backer: Sam Bankman-Fried’s U.S. crypto exchange darling FTX.US.
“We’re at the start of the journey together. The market structure is still being defined. Regulation is being shaped. And I think our combined perspective is more valuable than our independent [ones],” says Katsuyama, who is an FTX customer and owns a “spectrum of the most mainstream” cryptocurrencies. “We’re willing to play a role in building the infrastructure that makes sense.”
Terms of the investment were not disclosed.
IEX, which Katsuyama says is profitable and was not looking to raise capital ahead of the investment, and FTX plan to try and bring large-scale investors into the digital asset securities market in a regulated fashion through the partnership, whatever form it may take. (The companies said they plan to issue more information about it in the coming weeks.)
Bankman-Fried and Katsuyama both indicated interest while speaking with Fortune in possibly building a new trading venue, should regulators allow it. An IEX spokesperson added in an email that the exchange, along with FTX, is focused on developing “on ramps” for institutional investors into the market, the forms of which will depend on regulatory guidance.
“Our biggest goals are trying to get to a place where people can access all the digital asset securities that they want through FTX and IEX through a coherent and liquid manner,” says FTX CEO Bankman-Fried, who first met Katsuyama through a mutual investor. “Projects looking to get access to United States investors and liquidity on digital asset securities could use this as a way of doing so.”
Not all of Wall Street is bound to welcome IEX’s push into crypto.
While many fund managers and bankers have started to shift their tones around digital assets, there are still plenty of Jamie Dimons and Warren Buffetts out there—especially on the heels of a two-year-long run up in crypto prices. But for Katsuyama, ever the disruptor, the fundamentals behind crypto are here to stay.
“Much like the dot-com bubble, there’s this mad rush in, it pushes the boundary, and there’s a lot of fraud and bad activity. But at the core of that came some of the most revolutionary companies of all time, right? I think the same thing will happen here,” Katsuyama says. “There are companies being built, there are innovations being built, and there are layer-one protocols being built that will be foundational to the next revolution—whether it’s a service-based industry or broader. It’s why we’re involved. This is the future.”
The “next chapter” at Sequoia Capital… Roelof Botha is taking over as senior steward of the venture capital giant that is Sequoia Capital come July 5, succeeding Doug Leone. In a letter posted on Twitter, Leone wrote that Botha, whose investments include Instagram, Square, and YouTube, has had a “keen instinct for innovation [that] has made its mark on our partnership and on our industry.” Leone will stay on at Sequoia as a general partner in its existing funds as well as on the boards of portfolio companies.
A programming note… The fantastic Jessica Mathews will be back with you tomorrow. It’s been a joy to dive into the market’s plumbing with you on this fine Tuesday, so thanks for reading. If you’re intrigued to learn more, you can follow me through Fortune’s My Favorites and check out my weekly dispatches on all things crypto and fintech with our weekly newsletter, The Ledger. And now onto Jackson for all the deals you can imagine.
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Jackson Fordyce curated the deals section of today’s newsletter.
- The Honest Kitchen, a San Diego-based pet food brand, raised $150 million in funding from Monarch Alternative Capital.
- LinkSquares, a Boston-based contract management software company, raised $100 million in Series C funding led by G Squared and was joined by investors including G2 Venture Partners and Xerox Ventures.
- Tinybird, a New York-based software developer that builds data products, raised $37 million in Series A funding led by CRV and Singular Ventures and was joined by Crane Ventures.
- Appwrite, a Tel Aviv-based open source backend-as-a-service platform for web, mobile, and flutter developers, raised $27 million in Series A funding led by Tiger Global Management and was joined by investors including Bessemer Venture Partners, Flybridge Capital Partners, Ibex Investors, and Seedcamp.
- Future Family, a San Francisco-based IVF and egg fertility treatments loan provider, raised $25 million in Series B funding led by Munich Re Ventures and was joined by investors including TriVentures, MS&AD Ventures, ORIX, Aspect Ventures, Mindset Ventures, at.inc/, and OurCrowd.
- RenoFi, a Philadelphia-based home renovation loan platform provider, raised $14 million in Series A funding led by Canaan joined by investors including Nyca Partners and CMFG Ventures.
- Airgap Networks, a Santa Clara, Calif,-based cybersecurity platform that prevents ransomware, raised $13.4 million in Series A funding led by Storm Ventures and was joined by investors including Cervin Ventures, Engineering Capital, Sorenson Ventures, and others.
- Corsha, a Washington D.C.-based API security company, raised $12 million in Series A funding. Ten Eleven Ventures and Razor’s Edge Ventures led the round and was joined by 1843 Capital.
- 8base, a Miami-based development platform for building digital products and internal applications, raised $10.6 million in Series A funding led by Foundry Group and was joined by investors including MongoDB Ventures, Techstars, Firebrand Ventures, 11 Tribes Ventures, Argonautic Ventures, LAGO Innovation Fund, and Strawberry Creek Ventures.
- Nudge Security, an Austin-based cybersecurity startup, raised $7 million in seed funding led by Ballistic Ventures.
- Parallel Finance, a decentralized lending and staking protocol, raised $5 million in funding from investors including Section 32, Coinbase, and others.
- Book Salon, a Helsinki, Finland-based payment and booking service provider for hair, beauty, and wellness companies, raised €3 million ($3.3 million) in funding led by Joint Effects and was joined by Big Bets VC.
- Loanwell, a Durham, N.C.-based automated loan and grant platform, raised $3 million in funding led by Impact America Fund and was joined by investors including SoftBank’s SB Opportunity Fund and Collab Capital.
- Fortis Solutions Group, a portfolio company of funds managed by Harvest Partners, acquired Label Tech, a Somersworth, N.H.-based digital manufacturer of pressure sensitive and non-pressure sensitive labels and flexible packaging for the consumer product, food and beverage, and health and beauty markets. Financial terms were not disclosed.
- Isto Biologics, a portfolio company of Thompson Street Capital Partners, acquired TheraCell, a Los Angeles, Calif.-based regenerative medicine company. Financial terms were not disclosed.
- OrthoBethesda, a portfolio company of Atlantic Street Capital, acquired Shady Grove Orthopedics, a Rockville, Md.-based orthopedic, medical, and surgical care provider. Financial terms were not disclosed.
- Precinmac, owned by Pine Island Capital Partners, Bain Capital Credit, and Compass Partners Capital, acquired Petersen Inc., an Ogden, Utah-based fabrication, machining, and manufacturing services provider. Financial terms were not provided.
- StoneRidge Insurance Brokers, backed by CIVC Partners, acquired Generations Insurance, a Scarborough, Ontario-based insurance brokerage. Financial terms were not disclosed.
- Traub Capital Partners acquired a majority stake in HITS Shows, a Saugerties, N.Y.-based producer of hunter/jumper horse shows in the United States. Financial terms were not disclosed.
- H.I.G. Capital acquired Pixelle Specialty Solutions, a Spring Grove, Pa.-based fiber-based paper and packaging solutions provider, from Lindsay Goldberg. Financial terms were not disclosed.
- Advocate Aurora Enterprises acquired MobileHelp, a Boca Raton, Fla.-based remote patient monitoring and personal emergency response systems provider. Financial terms were not disclosed.
- Cyara acquired Botium, a Wien, Austria-based automated chatbot testing company. Financial terms were not disclosed.
- Gupshup acquired Active.Ai, a Singapore-based A.I. platform for financial services. Financial terms were not provided.
- The Arena Group acquired AMG/Parade, a Nashville, Tenn.-based multimedia content company. The company has agreed to pay a planned purchase price of $16 million in cash and common stock to to acquire 100% of the equity interest in AMG/Parade.
- Life Insurance Corp., a state-owned insurance and investment corporation, plans to raise $6.6 billion in an IPO in the country, according to Bloomberg.
FUNDS + FUNDS OF FUNDS
- Edison Partners, a Princeton, N.J.-based growth equity investing firm, raised $450 million for its tenth fund, focused on markets outside of Silicon Valley.
- MissionOG, a Philadelphia-based growth equity firm, raised $167 million for a fourth fund, focused on its portfolio companies.
- Sofinnova Investments, a Menlo Park, Calif.-based biopharmaceutical investment firm, hired Chris Carpenter as an executive partner. Formerly, he was with Catamaran Bio.
- Spider Capital, a San Francisco-based venture capital firm, promoted Minsoo Chi to partner.
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