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In a significant move within the rapidly evolving cryptocurrency market, Kraken, one of the leading crypto exchanges, considered acquiring NinjaTrader, a retail trading startup, for a hefty sum of $1.5 billion. To ensure the feasibility of this major transaction, Kraken's team needed to conduct extensive due diligencea meticulous process that typically involves a dedicated team of six employees who would scrutinize the startups financial health, legal compliance, and operational practices. Robert Moore, Kraken's Vice President of Strategy and Corporate Development, described the traditional due diligence process as a labor-intensive task that could span several weeks, requiring significant effort and expertise.

However, in a groundbreaking shift, Kraken harnessed the power of artificial intelligence through Termina, a burgeoning AI startup based in Silicon Valley. With its advanced technology, Termina was able to analyze crucial data regarding NinjaTrader almost instantaneously, dramatically accelerating the due diligence process. This innovative approach allowed Kraken to evaluate the startup's potential to attract new customersspecifically, traders actively engaged in buying and selling futures contracts. Although Moore noted that it was challenging to quantify the cost savings from this expedited process, he affirmed that Termina enabled his team to move with unprecedented speed.

As many professionals on Wall Street can attest, executing large financial transactions often requires extensive collaboration among bankers, lawyers, consultants, and accountants. The introduction of generative AI presents a promising solution to streamline these efforts, making it an invaluable tool in the realm of corporate deal-making.

Termina, which emerged from Tribe Capitala venture capital firm founded by Ted Maidenberg, Jonathan Hsu, and Arjun Sethihas been instrumental in demonstrating the potential of AI in financial operations. The company, co-founded by CEO Alex Chee and Jake Ellowitz, has taken its place as an independent entity outside of Tribe. Notably, Sethi, who recently became co-CEO of Kraken in October, played a pivotal role in connecting Moore with Terminas innovative solutions.

Moore expressed enthusiasm for exploring Termina's AI capabilities, stating, We are a very ambitious acquirer, and juggling multiple acquisitions with extended due diligence timelines can be quite challenging. While he chose not to disclose the exact number of previous acquisitions Kraken has executed before NinjaTrader, it is clear that their strategy is evolving with the times.

Terminas platform proved its worth by conducting a thorough analysis of Krakens operations itself, dissecting the financial metrics associated with various business segments, and assessing customer retention rates and unit economics for different products. This in-depth evaluation not only helped Kraken gain clarity on its own strengths and weaknesses but also served as a benchmark for the due diligence conducted on NinjaTrader.

Moore highlighted that Termina has now become an integral element of Kraken's corporate development process, functioning almost as an extension of his core team during the NinjaTrader acquisition and other confidential deals. The efficiency and capability of AI have enabled the corporate development team at Kraken to evaluate a greater number of potential acquisitions in their pipeline, although quantifying this increase remains complex.

For every project, Termina focuses on three key areas: verifying the accuracy of data provided by the target company, ensuring that the business thesis and anticipated synergies hold true, and identifying any potential issues that could jeopardize the proposed deal. According to Chee, Termina ensures the reliability of its findings by referencing source data, implementing multiple layers of automated checks, and having a team of senior analysts validate the results before they are finalized.

Once Kraken identified NinjaTrader as a prospective target, Termina was promptly brought into the evaluation process. Over a span of two to three weeks leading up to the exclusivity agreement, Termina processed a vast array of data on NinjaTrader, including financial statements, operational records, and loan classifications. In a remarkable turnaround, Termina produced a comprehensive report within just 24 hours, akin to what a traditional consultant might deliver.

This rapid analysis allowed Moores team to delve into various segments of the data through targeted inquiries. Chee noted that over the course of their collaboration, Termina completed at least ten detailed analyses, each of which significantly reduced the time typically required for such inquiries. While both Chee and Moore opted not to disclose the financial details of their agreement, Chee mentioned that Termina employs a fixed pricing model for its analytical services.

For Kraken, Termina's AI-driven assessment did not reveal any shocking discoveries regarding NinjaTrader; rather, it reinforced the fundamental rationale behind the acquisition. According to Moore, the analysis confirmed that NinjaTrader was experiencing growth, showing an increase in market share and average revenue per user, along with strong customer loyalty and retention rates.

Due to the scale of the acquisition, Moore mentioned that Kraken sought the expertise of various advisors, including PJT Partners for investment banking and Ernst & Young for forensic accounting. Overall, the timeline for finalizing the deal spanned approximately five to six weeks. Moore reflected on the role of AI in this context, stating that without its assistance, the timeline would have stretched considerably longer, although he remains confident that his team would have managed to complete the acquisition, albeit with considerable effort.

It would have taken us longer to get through some of those pieces, Moore remarked. Would we have still pulled it off? Maybe with no sleep, he concluded, highlighting the relentless nature of the finance industry and the transformative potential of AI in streamlining complex processes.