Exponential Exchange, a fintech startup focused on developing a broad spectrum of new market-based risk-management solutions, announced it has secured pre-seed funding of $1.4 million, raised in a series of convertible notes.
Exponential Exchange is developing a series of novel tradable financial instruments and derivatives to manage the new risks and opportunities posed by the transportation revolution. It uses modern data sets and data science techniques to power an innovative set of smart products, including derivatives contracts, that offer a more efficient approach to managing traditional and new sources of risk.
“This is a new approach to asset risk mitigation, for which the current solutions are few, inefficient and expensive.”
Exponential Exchange’s launch product is an exchange-traded derivative designed to manage the risks of fluctuating used vehicle prices – a significant problem for at-scale vehicle owners like rental car agencies and auto lease finance companies. In addition, Exponential’s automotive futures contracts will, subject to regulatory approval and listing on a designated contract market, allow financial markets to trade in a new asset class and better manage auto-related exposures in their portfolios.
“This is a totally new and much-needed approach to asset risk mitigation, for which the current solutions are few, inefficient, and extremely expensive,” said Ryan Naughton, CEO of Exponential Exchange. “Giving asset holders the ability to transfer their residual value exposure to a willing third party through an established derivatives market represents a critical ability for portfolio-heavy entities. It also closes the gap between auto and other industries like agriculture, energy and manufacturing that have benefitted for decades from the ability to hedge financial exposure through derivatives.”
This ability is particularly important for owners of large vehicle fleets, where price volatility in the used vehicle market can result in billions of dollars of financial risk. With over $500 billion in unhedged exposure in existing portfolios, often the only option for automakers and rental car companies is to hope that de-fleeted vehicles are liquidated at expected residual values – a highly uncertain proposition in the future given today’s historically high car prices and volatility.
“If you’re exposed to wholesale price volatility for a large fleet of vehicles, currently there’s really no palatable option for minimizing your exposure to future market shocks,” said Paul Fortin, Exponential’s Head of Index Products. “Exponential offers a transformative de-risking opportunity for fleet owners – especially as we move into the EV era, where rapid advancements in battery tech and related legislation around mandatory EV adoption will impact the value of legacy vehicles at unprecedented and hard-to-predict rates.”