A guest post for TMR+ by Tom Eldridge, co-founder of Fullerex
Commodity exchanges have existed for hundreds of years, driving economic growth through efficient and structured marketplaces. The success of these exchanges can be attributed to several key advantages that a market-based system provides participants over other channels of trade, which include – regulatory supervision, trade order and discipline (irrevocable agreements for sale/purchase of goods and materials), access to liquidity, reduction in costs associated with trade, price discovery, the ability to hedge and financing of production through forward sale.
In the market for nanomaterials, despite the considerable promise for various commercial applications, integration by industry has up to now been slow progress. This is due to a range of factors such as uncertainty through health, safety and regulatory issues; lack of agreed material standards; price confusion for buyers; supply insecurity; and often sparse sources of financing for producers.
To address these concerns, the Integrated Nanoscience and Commodity Exchange (INSCX exchange) was established in 2009 through a collaboration between experts in nanoscience and the securities and commodity industry; and in the following year commenced a live marketplace pertaining to nanomaterials.
Since then INSCX exchange, which is a member of the NanoCentral alliance of specialist providers in nanoscience, has driven hitherto non-existent trade interest in nanomaterials and nano-enabled products (such as catalysts, coatings, fertilizers, fuel and oil additives, etc…) by engaging producer/end-user interaction and more importantly by providing nanomaterials producers with the financial tools to be able to respond.
Crossing the funding chasm
Most start-up technology companies experience a funding chasm with few options available between securing initial capital contributions for R&D and moving beyond this stage into commercial production. Upscaling from lab to factory floor is a capital intensive process and at the early stage of business, with little or no revenues, this leaves start-up companies vulnerable to cash flow problems.
Establishing a steady revenue stream often requires high throughput to drive down unit cost and enable businesses to attract large buy orders in the first instance. Producer firms engaging in the exchange’s forward sale mechanism can use this process to manage cash-flow and/or achieve upscale financing.
Rather than relying on external sources of funding such as debt or equity that can be costly and/or dilute ownership, materials producers can use the exchange to mobilise capital from industry and develop their business with sustainable and organic growth.
Small to medium sized enterprises producing and supplying nanomaterials also have the challenge of prioritising development objectives and building successful trade relationships. In a centralised marketplace, these difficulties are more easily overcome since demand for materials is readily accessed and understood (qualified and quantified).
For nanomaterials producers the exchange is not to be regarded as anything other than a mechanism designed to complement the efforts of a producer to win sales, develop new product solutions and to enable essential commercial compliances to be adhered to in trade.
From the perspective of a start-up or early-stage company, benefits of trading on the exchange include:
- EHS accreditation
- IP protection
- Trade insurance
- Downstream Audit Sequence (DAS) track/trace system
- Upscale financing facility
- Trade with existing and/or new customers
Getting to grips with the concept
The exchange system however is not to be confused with a standard distribution agreement (which many nanomaterial producers have found either non-performing and/or expensive in terms of margin), but rather a market system, which generates an income for itself and authorized intermediaries such as Fullerex through trade clearing fees (set at a maximum of 1% of the financial consideration of each trade).
Exchange rules governing agency trade (where a merchant – trade member – of the exchange is acting for a producer or end-user) are bound by the principle of best execution. Over-loading and/or under-cutting of material pricing is strictly prohibited by the exchange. The role of the market system is to broadcast price as instructed.
[Note: Fullerex wishes to make clear that all trade in listed nanomaterials on the INSCX exchange remains for commercial supply and end-use purposes only.]