Why might your startup need a Head of Capital Markets?
There are a number of functional leadership roles that all startups need as they grow: a Head of Sales, a Head of Operations, and a Head of Engineering, for example. All startups have to serve their customers, ensure smooth operations, and build out teams that can innovate and provide a high quality product.
But not all startups need a Head of Capital Markets. As we covered in previous posts on what startups can use asset-backed debt capital and why capital strategy matters, it's startups that have a financing or lending component where access to debt capital tends to be a key growth variable, and where a Head Capital Markets might be necessary.
For startups whose only funding source is equity from venture capital firms, it's enough for the CEO to run the fundraising process and, after funding has been wired, move on to other things.
Yet when startups need debt capital or asset-backed finance to grow, hiring a Head of Capital Markets, or a CFO with the same skillset, turns out to be critical.
Debt capital and asset-backed credit facilities bring a whole new set of financial and operational questions:
Is the company ready to raise debt? Does it know how to run a tight diligence and negotiation process for doing so?
How will the company report on its assets? Are its systems properly set up to generate the right KPIs?
What rules does the company have to follow in order to maintain access to its funding?
At what point will the company run out of debt capital funding, which is essentially "inventory" for the company? Is there a plan for raising the next round of debt capital, and kicking off the capital raise process with adequate lead time?
Answering these questions and handling all debt capital-related issues is a full-time job, which is where your Head of Capital Markets comes in.
What does a Head of Capital Markets do?
Broadly speaking, a Head of Capital Markets is responsible for owning a startup's relationships with capital providers; working with Legal, Operations, Product, and Finance to secure new sources of funding; and building out scalable processes for reporting on and maintaining access to debt capital.
The typical Head of Capital Markets will have 5+ years of experience in Capital Markets (whether at a bank, a fintech, or both), and may have some experience with securitization (this is the "end goal" for many startups, as it ensures the lowest cost of funding).
In our experience, bank or capital provider professionals (particularly in private credit) who have experience covering fintechs are able to anticipate possible financial and operational issues before they escalate, and can operate at a high level from Day 1. This is the most common profile for Capital Markets leaders at VC-backed fintechs. That said, we've seen some excellent Capital Markets leaders come from general investing or startup finance backgrounds as well. The only issue is that it may take longer to ramp up.
What skills do great Heads of Capital Markets have?
In our experience, having the requisite knowledge of capital markets is necessary but not sufficient to be a great Head of Capital Markets, as there are a number of intangible requirements as well. Here are the top traits of great Heads of Capital Markets:
Versatility. Great Heads of Capital Markets are as comfortable navigating the Byzantine lender landscape as they are debugging a borrowing base Excel spreadsheet.
High execution standards. Great Heads of Capital Markets are willing to move fast and break things, but they also know that the lender-borrower relationship is based on trust and consistent execution, and that delays in funding are unacceptable.
Data-driven. Great Heads of Capital Markets are opinionated on data schemas and concentration kickout methodologies. They've dealt with loan tapes and covenant monitoring (usually from the lender side), and they have strong opinions on the best way to format, measure, and track credit facility KPIs.
Goal- and growth-oriented. One characteristic all great Heads of Capital Markets have in common? Ambition when it comes to company growth goals. The best capital markets leaders know that, with the tools available to today's fintechs, it's possible to raise $100M+ in debt capital only a year after launching a new product. As a result, they negotiate today's term sheets with an eye towards keeping flexibility for tomorrow's funding options.
Tech-forward. At a bank or mature fintech company, it may not matter if processes are manual or inefficient. But at a startup, every data analyst, financial analyst, or software engineer working on a capital markets-related task takes time away from the business' "front-end." That's why great Heads of Capital Markets leverage best-in-class technologies for financial data integration, workflow automation, and financial monitoring in order to serve their businesses as efficiently as possible.
Want to learn more?
Finley is debt capital management software that helps high-growth startups save time and money by automating routine credit facility management tasks like borrowing base reporting, verification, and alerting. Today, Finley manages over $2 billion in debt capital for high-growth startups like Ramp, Parafin, and Arc. If you're interested in learning more about software that can help you streamline your debt capital raise and management, just schedule a demo or take a self-guided product tour of Finley. We'd love to chat!