There have been some interesting posts lately about the lead exchange model. I felt it might be an entertaining topic, so entertaining that it may even be worth coming out from my long slumber to make another contribution. Firstly, I’ll try and give a little color to the background of the lead exchange as I understand it. Ultimately, there have only ever been a few lead exchanges in existence.
There is one relatively new attempt. The first lead exchange remains solvent, but has required numerous rounds of funding to do so. The second lead exchange which is now out of business, was started with a great deal of capital (from what I understand). Lewis Ranieri, who is now infamous in this industry as the father of the CDO (Collateralized Debt Obligation), contributed millions of his own funds on top of additional venture capital money that was raised to help start this company. Yet, today the company doesn’t exist. Why is one operating after raising a Series E round of funding while the other is insolvent? There are a number of contributing factors, but ultimately it is because the lead exchange model can’t work. There are two reasons why the model can’t work: the margins are too thin and the market does not need an exchange to operate. I will elaborate. Continue Reading
