Capitolis: The Future of Capital Markets
9Yards is excited to announce that we are co-leading the $110M Series D in Capitolis with Canapi & SVB and alongside our friends at Andreessen, Index, Spark, Sequoia, Citi, State Street and JPMorgan.
The largest market in the world — the capital market — is the next frontier in Fintech. Across equity and debt, this global market accounts for north of $150T in assets. Including derivatives, the market swells to well north of $1,000T: more than 10x that of global GDP. Our modern economy depends on our capital markets. Every day, trillions of dollars exchange hands as companies tap the markets to grow & protect their businesses while investors look to find attractive yield.
Historically, the largest banks have been the gatekeepers to capital markets. These banks have benefitted from their consumer deposit base — cheap capital that has allowed them to serve clients with various products, from term loans to interest rate swaps. However, banks now face multiple threats to their capital base: it is less abundant, as consumer deposits move to a diversified set of new providers, and more expensive, as new regulation limits origination ability.
As a result, we believe that “capital” will eventually unbundle from banks and that the capital markets landscape will look vastly different in the future. On one side, there will be more pools of capital looking for yield, such as neobanks or perhaps newly minted retails investors. On the other side, there will be more originators serving customer needs, like modern-day BNPL providers. This increasingly fragmented and decentralized world demands a new way for originators to meet allocators. Enter Capitolis.
Let’s Rewind Back
Following the Global Financial Crisis in 2008, significant regulation was introduced to strengthen the global financial system. Regulatory frameworks, like Dodd Frank and Basel III, were designed to create a new system of checks and balances amongst key market participants — specifically the largest and most systemic banks (GSIBs). These banks are now required to reserve additional capital on their balance sheet for nearly every activity they engage in. This regulation has consumed bank balance sheets, limiting the amount of business that they can generate and thus lowering their returns.
While this regulation has been effective from a crisis-prevention standpoint, it has not come without costs. With banks as the primary participants in capital markets, access to and cost of financing solutions have increased significantly, hurting overall market efficiency and economic growth. Meanwhile, outside of the banking system, exists vast amounts of regulatory-insensitive capital looking for yield. Until Capitolis, there has not been a viable alternative that meets the goals of both these market participants and regulators.
The Capitolis Advantage
Capitolis has built a B2B marketplace for capital that connects originators (like banks) with allocators (like asset managers). Capitolis solves a fundamental market inefficiency by connecting banks, which have near limitless origination ability, with capital allocators, which have trillions in assets looking for yield. In doing so, Capitolis syndicates risk away from systemic banks by funding originations with a diversified base of institutional and regulatory-insensitive capital. Capitolis is effectively the private market solution to public sector objectives.
Capitolis started with GSIBs and their prime brokerage function — helping streamline the $10T+ OTC derivatives market. Thanks to a best-in-class product team, Capitolis has found a unique way to productize various kinds of illiquid risk to trade efficiently in a marketplace format. As a result, in just two short years, this Capitolis marketplace has processed $60B in transactions between many of the world’s largest banks, asset managers, pension funds and corporates.
Moving forward, Capitolis intends to build the definitive marketplace for private credit — a $20T opportunity in the US alone. From a bank’s loan book to a fintech’s BNPL financing, Capitolis will become the central exchange for supply to meet demand. In doing so, Capitolis creates a win-win-win for originators, allocators and regulators. Originators access cheaper capital while maintaining client relationships, allocators access risk & yield otherwise unavailable to them, and regulators achieve safer and healthier capital markets.
This is an enormous vision — but if you meet Gil Mandelzis (CEO & Founder), you know it can be done. To innovate in capital markets, you need a very special founder, someone who understands both how markets work today and how to build a technology company of tomorrow. Gil is one of those people. Prior to Capitolis, Gil founded Traiana, a market infrastructure technology provider that revolutionized pre- and post-trade processing for both listed and OTC trading. Alongside him, Gil has built a world-class team with the best talent from both Wall Street and Silicon Valley.
As the financial services landscape continues to evolve, we believe that Capitolis is uniquely positioned to power the future of our capital markets. Much in the same way that asset-light marketplaces have revolutionized industries (AirBNB, Uber, Faire, to name a few), we believe that Capitolis will become the largest source of capital without having an actual balance sheet. At 9Yards, we are incredibly excited to co-lead the $110M Series D for Capitolis alongside Canapi, Andreessen, Index, Spark, Sequoia, Citi, State Street and JPMorgan (Read more here).
