In this installment of our series of executive interviews, Charlie Perer sits with Matthew Bjonerud of Cerebro Capital to hear his perspective on the state of the debt capital markets, building a new distribution channel, the future of lending and technology, among other things.

Charlie Perer: Thank you for your time, Matt. To begin, can you please talk briefly about your background?  

Matt Bjonerud: My whole career has been in corporate finance. I started in banking right before the 2008 credit crisis and spent the next eight years in banking at PNC Bank, predominately in originations following roles in credit and underwriting. Later, I was recruited by a local private company to help manage their debt portfolio and help the company launch their IPO.  Having both big bank and corporate experiences shaped my thinking greatly in terms of voids in the market and how companies access debt.

Perer:  What led you to found Cerebro Capital?

Bjonerud: I wanted to democratize access to capital for lower- and middle-market borrowers while also taking away the heavy lifting associated with closing a loan. That’s what led me to found Cerebro.

I knew from my previous experience as a banker for the middle market, that smaller companies did not have the same resources, bandwidth, expertise, or access to data, which made accessing credit harder than it needed to be.  There are too many barriers separating lower- and middle-market borrowers from capital providers.

Now contrast that to the large private company I worked for in Baltimore. Their considerable resources enabled them to assess their financial options and execute transactions. They did this by using dedicated capital markets teams, sophisticated financial tools, and access to data that enabled them to create an efficient process to access both institutional debt and equity. 

Perer:  Please tell us about the mission of Cerebro Capital for those who don’t know about it.

Bjonerud:  Our vision at Cerebro is to unleash the flow of debt capital to mid-market businesses from the limitations of personal networks. We want to do that by being the primary place companies go for loan options between $1 - $100 million and by being the primary place lenders go to find new borrowers. 

At Cerebro, we want to usher in a world where the only things commercial borrowers have to worry about is how large of a loan to take. They shouldn’t need to figure out whether they can get a loan, what loan options are available, which bank and banker is going to provide the best terms, and how will they find the time to complete the underwriting and closing process.

Perer:  What is the pain-point you are trying to solve?

Bjonerud: The way that lenders have sourced business and borrower have found debt capital has not changed in several decades. The last great evolution in technology for the lending industry was the Excel spreadsheet.

The corporate lending industry has been left out of the technological revolutions seen across almost all other industries from real estate to dating….Rocket Mortgage, Match.com, Airbnb, Amazon, etc.

Cerebro is working to evolve how lenders and borrowers access the middle market by using technology to make access easier, faster. Cerebro is also using data to help bring about innovation from lenders in the form of new loan structures and service models.

Perer:  How do you think about solving the distribution paradigm for how most borrowers reach both bank and non-bank lenders?

Bjonerud:  We’re solving the problem by collecting the underwriting criteria from thousands of bank and non-bank lenders and then program them into a dynamic algorithm that changes as lender’s risk appetite changes. We then allow borrowers to see within seconds what loan types, the rates and terms, and count of lenders that match with their specific borrowing need. If the borrowers like what they see, we curate a subset of these lenders, populate a custom-built data room and then launch their financing request.

Perer:  Most lending relationships, especially in the lower middle market are still done locally. How do you change behavior to get local borrowers to do business with out-of-territory firms?

Bjonerud: At Cerebro, we aren’t seeking to change any behavior from borrowers or lenders. We have both local and national lenders on our marketplace and our algorithms use geography of both the borrower and the lender in the matching process. We've found that most companies like to deal with lenders that are local, if given the option, and we've found that most commercial banks, especially regional and community banks, are primarily interested in lending to local companies. However non-bank lenders, which represent a large part of the middle-market lending landscape, typically lend nationally. We've found borrowers have no hesitation in taking on a relationship with a national lender if they can access better terms.

Perer:  Are you democratizing access to capital the way Southwest Airlines democratized air travel and Netflix democratized distribution for new content?

Bjonerud:  I’d argue that we’re democratizing access to capital in the same way that Kayak or Orbitz made finding the best flight easy and data-driven. Our marketplace not only helps middle-market borrowers find new lenders and the best loan structure for their needs, but helps lenders deploy their capital more efficiently to the types of borrowers and situations they know best.

Perer:  Do you think a new channel being created for borrowers to access capital will create an avenue and opportunity for new lending platforms?

Bjonerud:  The new channel of distribution we are creating should help current and new lenders tremendously. Specifically, we are making it easier and more efficient to distribute their capital, understanding holes in the market that could be big opportunities, and insight on how lenders can innovate both their loan products and service model.

In any given month, we are actively distributing over half a billion of transactions to lenders. Prior to Cerebro, the easiest way to distribute capital of that quantum to the middle market was byhiring BDOs and targeting private equity firms. The majority of Cerebro deal flow comes from independently owned companies, which represents a new way to diversify a lender’s portfolio.

Perer:  What challenges do you have to overcome to get borrowers to sign up on the platform?

Bjonerud:  We have structured an increasingly frictionless experience for borrowers where we use our tech and data to show them all the loan options that they are pre-approved for across thousands of bank and non-bank lenders. We provide this visibility at no cost to ensure that there’s a fit for them on our platform before they set up an account.

We are relatively new and some people may not be ready for this model (like most tech adoptions) and it’s really about getting corporate borrowers over the hurdle of trying something new and trusting it. Once they’ve experienced it, we’ve seen that they come back again and tell others. We continue to receive great client feedback and are seeing increased adoption every quarter.

Perer:  How big is the market for borrowers who want a national platform vs. maybe a regional advisor?

Bjonerud:  This is a multi-trillion-dollar market, which represents a big opportunity. We understand that some borrowers prefer to work with local advisors and that’s okay. There is more than enough room for all of us.

Perer:  Does Cerebro ever plan to get into lending?

Bjonerud:  At this time, Cerebro does not compete with its own lender network. Cerebro has no plans to become a balance sheet lender itself. The full focus is on helping borrowers connect with existing lenders and helping lenders deploy their capital more efficiently.

Perer:  Tell us about your team. 

Bjonerud:  Cerebro’s management team has deep experience across tech, debt capital markets, and digital marketing in financial services. Almost every person on the executive team has over 30 years of experience and brings tremendous energy to executing on our mission.

Lenders and borrowers interact with our capital markets team, which is made up of former lenders who have sat on credit committees and know to help borrowers position their credit narrative to maximize success.

Perer:  Are you a tech company, lending platform or both?

Bjonerud:  We are a tech company and a lending marketplace. We are regularly building and releasing new tools to make matching borrowers and lenders more accurate, faster, and easier. We also develop and release custom tools to streamline the exchange of information and increase transparency related to the process of closing loans.

Perer: Lastly, tell us something you are worried about that the rest of the market has yet to figure out. 

Bjonerud:  The biggest problem is a lack of innovation in new loan structures. As a result of the volume of loans we see, Cerebro has unique insight into the holes in the market. We also see that lenders are rarely proposing new and innovating loan structures to fill those holes. Our hope is that we can use the market data that we see to help lenders create new loan products that can help fill those holes in the market.