Trumid, A Better Kind of Bond: An Analysis of a New NYC FinTech Unicorn.

Trumid, a NYC based financial technology company that brings efficiency, connectivity and access to credit trading, recently announced a $208M capital raise valuing the firm at $2.4 billion. In light of this large raise, and …

Trumid, a NYC based financial technology company that brings efficiency, connectivity and access to credit trading, recently announced a $208M capital raise valuing the firm at $2.4 billion. In light of this large raise, and the fact that I follow the NYC FinTech markets closely, I wanted to shed light on how this company operates and their domain expertise.

In this article I specifically dive into the following:

  1. Who Trumid is, their core product offering and value proposition (with a demo), and their capitalization table.
  2. Competition in the industry.
  3. How bonds work, the bond vs equity markets, and the ways bonds are scored and by whom.

Who is Trumid?

Trumid is the developer of an electronic trading platform designed to bring efficiency to credit trading through data, technology, and innovative software products. The company’s platform offers corporate bond market professionals with direct access to liquidity and market intelligence and leverages the network effect and data science, enabling credit market participants to make more informed trading decisions.

What does Trumid’s capitalization table look like? How much money have they raised?

Trumid’s 1st round of early stage venture capital was completed in Q1 of 2015. 11% of the company was acquired for $8.25 million of venture funding in a deal led by Shumway Capital Partners. This put the company’s pre-money valuation amount at $66.75 million. Today’s announcement shows their meteoric growth: Trumid received $208 million of development capital from TPG, BlackRock, T. Rowe Price, Motive Partners, Point Break Capital and Senator Investment Group. The transaction values the company at an estimated $2.4 billion.

Trumid’s funding represents a 36x increase in valuation over the past 6 years, implying an 82% Compound Annual Growth Rate (CAGR).

This financing adds on to additional capital raised earlier this year: Trumid received $50 million of development capital from Dragoneer Investment Group and DST Global on January 13, 2021 and earmarked this capital to repurchase shares from existing shareholders. 

Does Trumid have unique Intellectual Property? 

Yes. Trumid has a Patent for the embodiments of an electronic negotiation framework and data storage system to facilitate the electronic trading of corporate bonds, government bonds, and other semi-liquid financial assets. Their electronic negotiation framework may allow two or more market participants to engage each other in an electronic negotiation using numeric responses.

These responses may be captured, stored, and then converted into market-standard, conversant messages which are transmitted over a communication network. This electronic “conversation” preferably follows a structured rubric determining the “receive/respond” prompts which enable opposing parties to more efficiently reach mutually agreeable transaction terms. All of these receive/respond messages may be stored in the computer system’s database for structured review and analysis. 

Here is a diagram representing their patent filing.

Which other companies offer solutions similar to Trumid?

  1. FlexTrade: Provider of an order management trading platform for financial securities.
  2. AxeTrade: Developer of a fixed income trading platform designed to power execution venues for fixed income products.
  3. InfoReach: Provider of an electronic trading platform intended to facilitate the electronic reading of financial securities.
  4. Currenex: The company provides a real-time foreign exchange marketplace that connects a large number of global banks to an electronic trading network, thereby providing traders with deep pools of liquidity for anonymous and disclosed trade execution.
  5. Marco Polo Network: Operator of a distributed ledger technology-powered platform designed to provide digital trade and payment solutions.
  6. Forge Global: Developer of an online trading platform designed to improve access and liquidity in private markets.

Many Financial infrastructure and data aggregator fintech companies are becoming attractive M&A candidates as acquirers seek to own larger parts of the financial services value chain.

How does Trumid’s core product work?

The bond market refers broadly to the buying and selling of various debt instruments issued by a variety of entities. Corporations and governments issue bonds to raise debt capital to fund operations or seek growth opportunities. In return, they promise to repay the original investment amount, plus interest.

Trumid Labs’ FVMPTM service covers approximately 22,000 USD-denominated corporate bonds. You can leverage their software by entering a bond’s CUSIP or ISIN for the latest Fair Value Model Price (FVMP) value.

In this example below I enter a CUSIP/SIN (in this case, I enter a Boeing bond) and am given the date, price, and spread.

Let me define a few of these terms:

  1. A CUSIP number is similar to a serial number. The first six alphanumeric characters are known as the base, or CUSIP-6, and identify the issuer. The seventh and eighth digits identify the type of security and the ninth digit is a “check digit” that is automatically generated. By providing a consistent identifier that distinguishes securities, CUSIP numbers help facilitate and ease actions and activities such as trades and settlements. CUSIP Global Services creates anywhere from 1,000 to 2,000 new identifiers each day.
  2. A bond price is the present discounted value of a future cash stream generated by a bond. It refers to the sum of the present values of all likely coupon payments plus the present value of the par value at maturity.
  3. Bond spreads are the common way that market participants compare the value of one bond to another, much like “price-earnings ratios” are used for equities. Bond spreads reflect the relative risks of the bonds being compared. The higher the spread, the higher the risk usually is.

What is Trumid’s unique value prop?

  1. Powerful Networks: a diverse and growing network for trading corporate bonds.
  2. Protocol Flexibility: Providing traders with the option to trade anonymously or to bilaterally negotiate. These experiences are delivered within the intuitively designed Market Center 2.0 interface.
  3. Seamless Workflows: Trumid offers different ways to integrate a business quickly and easily within the platform.
  4. Technological innovation: Trumid combines deep corporate bond experience with technology expertise to bring leading-edge technology, data and UX principles to fixed income trading. The underlying architecture is secure and reliable, with 99.99999% uptime.
  5. Automated Spotting: The platform handles rate risk with Automated Spotting functionality. 

What search queries drive organic traffic to Trumid? What can be inferred from this traffic?

Trumid doesn’t currently run paid ads to acquire customers. Nor do they have a robust internet presence with regards to organic search volume. 

For example, the following keywords are the ones Trumid most commonly ranks for on Google:

  1. Trumid
  2. Trumid Financial
  3. Trumid Financial LLC
  4. Trumid News
  5. Trumid Careers

When I see a company with branded search performance (i.e. the firm ranks well for its name, but not other search queries), it is a strong indicator that attracting customers via online acquisition is not part of the strategy.

How do bonds work?

Bonds are issued by governments and corporations when they want to raise money. By buying a bond, a person or entity is giving the issuer a loan, and they agree to pay back the face value of the loan on a specific date, and to pay periodic interest payment along the way.

  • Bonds can be issued by companies or governments and generally pay a stated interest rate.
  • The market value of a bond changes over time as it becomes more or less attractive to potential buyers.
  • Bonds that are higher-quality (more likely to be paid on time) generally offer lower interest rates.
  • Bonds that have shorter maturities (length until full repayment) tend to offer lower interest rates.

If you buy a bond, you can simply collect the interest payments while waiting for the bond to reach maturity—the date the issuer has agreed to pay back the bond’s face value. However, you can also buy and sell bonds on the secondary market. After bonds are initially issued, their worth will fluctuate like a stock’s would.

If you’re holding the bond to maturity, the fluctuations won’t matter—your interest payments and face value won’t change. If you need to sell a bond – and understand the price and spread – Trumid is a software company that can help in the transaction.

How big is the bond market versus the stock market?

The bond market doesn’t get nearly as much attention among most investors as the stock market. Yet even though the bond market typically doesn’t offer as many chances for investors to earn multibagger returns, it nevertheless plays a vital role in balancing investment portfolios and helping people keep money available for shorter-term needs. 

The global bond market has more than tripled in size in the past 15 years and now exceeds $100 trillion. By contrast, S&P Dow Jones Indices put the value of the global stock market at around $64 trillion. In the U.S. alone, bond markets make up almost $40 trillion in value, compared to less than $20 trillion for the domestic stock market.

Global bond markets outstanding value increased by 16.5% to $123.5 trillion in 2020, while global long-term bond issuance increased by 19.9% to $27.3 trillion. Global equity market capitalization increased by 18.2% year-over-year to $105.8 trillion in 2020, while global equity issuance decreased by 52.9% to $826.8 billion. 

U.S. gross activity (purchases and sales) in foreign securities increased to $46.1 trillion in 2020, up 24.7% from 2019. Foreign gross activity in U.S. securities increased by 19.6% to $98.3 trillion in 2020.

How are bond ratings determined?

Bond ratings are determined by third-party rating agencies. This helps keep the evaluation of bonds independent and objective. The three main rating agencies – Fitch, Standard & Poor’s and Moody’s – each assign slightly different ratings to bonds, although the overall scales are meant to be comparable. Rating agencies are not government entities; rather, they are for-profit corporations in their own right. Moody’s, Standard & Poor’s and Fitch assign ratings to bonds in exchange for cash payments. As corporations, this is one of the ways in which they earn money for shareholders.

The Standard & Poor’s rating scale is as follows:

  • AAA (extremely strong)
  • AA (very strong)
  • A (strong)
  • BBB (adequate)
  • BB (faces major ongoing uncertainties)
  • B (adverse conditions will impair payment capability)
  • CCC (currently vulnerable to nonpayment)
  • CC (highly vulnerable to nonpayment)
  • C (highly vulnerable to nonpayment)
  • D (in default)

The Moody’s rating scale is comparable:

  • Aaa
  • Aa
  • A
  • Baa
  • Ba
  • B
  • Caa
  • Ca
  • C

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