Approach

Echobay’s goal is to produce superior returns by investing in early stage businesses along the Exchange Industry Vertical (EIV). To accomplish this, Echobay draws on its extensive experience as an industry participant. The firm then combines bottom-up and top-down approaches to understanding the investment prospects of a particular business.

First, it understands at a granular level the drivers behind EIV volumes and revenues. Second, it has a good grasp on potential industry changes and can anticipate their affects on these drivers.

Exchange Industry Business Model

The EIV consists of intermediaries, their clients, and the venues on which they execute trades. Some examples include Exchanges, Brokers, Banks, Broker-Dealers, and Principle Trading Firms.

Individual EIV businesses provide one or more of these four services: Execution, Liquidity Provision, Distribution, and Analytics. Execution and Liquidity Provision are their primary revenue sources with Distribution and Analytics as value-added or loss-leader services.

EIV Volume Drivers

Market structure and logistics are key drivers of EIV volumes. They are important business differentiators in an otherwise standardized service industry. Echobay understands intimately the effect these drivers can have on volumes and has taken a systematized approach to quantifying businesses according to market structure compatibility.

By understanding a market’s structure and a firm’s approach to integrating itself into that structure, Echobay can better value a company’s current franchise and also properly handicap its future prospects given change within its industry.

Macroeconomic Factors

There are several macroeconomic factors which greatly influence volume drivers for EIV firms. Chief among them are Technology, Regulatory Climate, and Economics. Echobay has quantified these as parameters which can either inhibit or enable certain market structures and thus effect volumes.

Echobay’s approach can be reduced to an understanding that if a parameter “moves”, what its effect will be on a market’s structure and therefore an EIV firm’s ability to generate volumes.

Value Added Investor

Echobay has a deep understanding of the industry in which it invests. It seeks to be an added value investor to those firms with which it partners. It approaches each investment using a consultant based style of due-diligence and considers synergy potential an important part of its decision process.