E151: The Rise of Asset-Backed Credit w/Billy Libby
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How does Upper90's investment model differ from traditional venture capital?
to all AI cloud computing. Will you help us figure out how to finance this equipment? At the time, it wasn't really well understood by banks. We look for these equipment-oriented businesses where we can help kind of season before it becomes well understood and well accepted as an asset class. So today, there's institutions from Blackstone and others that are financing NVIDIA chips. Two or three years ago, you can think about financing those partially with
Grubhub and Seamless merged in 2013. The businesses were similar size, but the Grubhub team owned a substantial larger stake in their company. Why is that? My partner, Jason Finger, was a lawyer for a moment and had to go and order dinner for his bosses and saw that he could get a 2% cash back on his credit card if he ordered it through his own means for the order. So that's kind of how Seamless started. But he was educated in tax and finance. And so when he raised money for Seamless, he raised a small amount of equity, like hundreds of thousands of dollars. And when he would sell that service, he would get the customer to, instead of paying over two years, maybe to pay those two years up front and figuring out ways just to get access to, you know, working capital lines and stretching dollars and effectively thinking of using credit, right? And that really helped him grow the business where equity would have been raised in much larger quantums.
the vast majority of Seamless was owned by the management team. The Grubhub team, which was Chicago-based, ended up raising more of the traditional, you raise a seed round and then you prove the concept, you raise the A round, you raise the B round. It's almost just like flight of passage. It's like, you know, how many announcements can you get and how big can those rounds be and how preempted can they be? There's nothing wrong with that, but when they ended up merging Seamless, you know, the businesses because of that capital structure and because of the use of credit and just different tools, the Seamless team owned the majority of the business and the Grubhub team on the minority of their business, same business, same size. And I think when Jason and I connected, he's like, most founders are just, they don't think of these tools. They're not taught about credit.
And that's really drives his interest of upper 90 and helping founders have different paths to own more of their company. When a lot of startups think about credit, there's this perception that it's only for fintech companies. What kind of startups can utilize credit? That's a good point. I mean, fintech is very easy to understand because you kind of have some payment in the future and you're factoring it or collecting it today. And it's part of everything we do. Everyone has a credit card and everyone has car payments and it's kind of just normal. So we do that and... Still think there's a role to have a good early partner. But the other things that we've seen have been equipment. There's a lot of new forms of collateral or new businesses where equipment's not yet well understood. A few years ago, Crusoe Energy approached us and said, there's this new asset. It's called an NVIDIA GPU. We think it's going to change the world. We think it's going to be core to all AI cloud computing.
Will you help us figure out how to finance this equipment? At the time, it wasn't really well understood by banks. We look for these equipment-oriented businesses where we can help kind of season before it becomes well understood and well accepted as an asset class. So today, there's institutions from Blackstone and others that are financing NVIDIA chips. Two or three years ago, upper 90 was. If you can think about financing those partially with credit versus all with equity. You have this new thesis on NVIDIA chips, and you don't yet have the large institutional investors, the Blackstones, able to finance them because the thesis is too new. How do you go about structuring the investment in such a way that's both attractive to the counterparty, but also attractive to you and your investors?
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2 chaptersSpeakers
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