Invest2 publishersIndependently confirmed2 min readPublished
Citi-led banks back Capitolis at $1.9 billion as it buys its way into securities lending
Capitolis raised $220 million, including a $120 million Series E led by Citi at a $1.9 billion valuation, with eight other big institutions joining. Most of the money backs its purchase of eSecLending, putting securities lending inside the capital and balance-sheet software Capitolis sells to banks.
The Investor · Invest desk
Drafted by a language model from the sources cited here and checked against its claim ledger before publication. How we use AISend a correction
What happened
- Bank of America, Nomura and Tradeweb Markets came in as new strategic investors, and Barclays, BNP Paribas, J.P. Morgan, State Street and UBS returned from earlier rounds.
- Debt from First Citizens Innovation Banking, formerly Silicon Valley Bank, Hercules Capital and Pinegrove Venture Partners makes up the rest of the package.
- Capitolis says the eSecLending deal also widens its access to a network of institutional asset owners.
- The new valuation compares with $1.6 billion at Capitolis's previous funding round in 2022.
Compiled by The InvestorSomething wrong?How this is made
Why it matters
- exposure Nearly half the package is debt, so any delay in eSecLending's revenue falls on Capitolis's cash and its lenders before it reaches shareholders.
- cost Holders from Capitolis's 2022 round have earned about 4.4% a year on paper, a thin return for any investor without a strategic reason to own the company.
- exposure Asset owners in eSecLending's network now work with a vendor directly owned in part by several of the world's largest financial institutions.
The banks on Capitolis's register are paying for eSecLending, or rather for part of the package that pays for it [5]. Take the $120 million of equity out of the $220 million total and $100 million is left, so about 45% of the money is borrowed [13][14]. The banks' own share of the equity is below $120 million, because unnamed new and existing financial investors also bought into the Series E [3].
Gil Mandelzis, the founder and chief executive, said the mix was deliberate [11]. "Debt is much cheaper for the company. We will soon start generating significant cash flow, and I prefer debt over equity," he told Calcalist [12]. The share price gives him a reason. At $1.9 billion, Capitolis is worth 19% more than at its 2022 round, roughly four years earlier [15]. If $1.9 billion is the post-money figure, the $120 million bought about 6.3% of the company [19]. Capitolis did not disclose what it is paying for eSecLending.
Borrowing makes the timing of eSecLending's revenue matter. Mandelzis said the acquisition "is set to generate tens of millions of dollars in revenue as early as the coming year" [18]. If that arrives, cash flow carries the debt and the shareholders own a larger platform bought at a price only 19% above 2022's [15]. If it arrives a year late, Capitolis is more likely to come back for equity before the acquisition has proved itself, at whatever price the market sets then.
I think the banks are buying the platform more than the stock. Mandelzis framed the round the same way. "I believe in strategic investment, like the kind we just secured," he said [12]. Nine named institutions sharing a stake of about 6.3% with other investors own, on average, less than 0.7% each [17][19][20]. The counter-thesis is that the strategic investors expect eSecLending to reprice Capitolis at its next round. If that round lands well above $1.9 billion on the new revenue, the banks were financial investors first and strategic ones second, and this view is wrong.
What to watch
- A disclosed price for eSecLending, so the revenue forecast for the coming year can be set against what Capitolis paid.
- Terms on the roughly $100 million of debt from First Citizens, Hercules and Pinegrove, chiefly the rate and maturity.