WEBVTT - A Guide for Aspiring Entrepreneurs

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<v Speaker 1>This is Bloomberg Business Week with Carol Messer and Tim

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<v Speaker 1>Stenebeck on Bloomberg Radio.

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<v Speaker 2>So we love talking about the small business and startup communities.

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<v Speaker 2>We talked with Jesse Draper last week, who actually is

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<v Speaker 2>in our weekend show, and then on small business yesterday

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<v Speaker 2>we talked with Ben Walter, CEO of Chase Business Banking,

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<v Speaker 2>who gave us some insight on small business lending, especially

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<v Speaker 2>when it comes to startups and what not to do.

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<v Speaker 1>Listen up, everybody, Debt is not the way to start

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<v Speaker 1>a business. It's not really what. That's equity and there

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<v Speaker 1>are markets for that. There are ways to get raise

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<v Speaker 1>equity money. You know, sometimes people do it on the

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<v Speaker 1>credit card and their personal credit and that's okay, it's bootstrapping.

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<v Speaker 1>But business credit is really designed for businesses who have

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<v Speaker 1>been in business for two years or more in.

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<v Speaker 2>Have cash flow. All right. That was Ben Walter, CEO

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<v Speaker 2>of Chase Business Banking yesterday. But we have a guest

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<v Speaker 2>today who is in the business adventure debt loans for

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<v Speaker 2>early stages startups with venture capital backing. Delighted to have

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<v Speaker 2>with us David Sprang, his founder and CEA of CEO

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<v Speaker 2>excuse me, founder and CEO of Runway Growth on Zoom

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<v Speaker 2>in Silicon Valley. He's got a new book out to

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<v Speaker 2>All Money Is Not Created Equal, How entrepreneurs can crack

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<v Speaker 2>the code to getting the right funding for their startup. David,

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<v Speaker 2>nice to have you back here on Bloomberg. How are you.

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<v Speaker 3>I'm doing very well, thanks, Kerrel Tory. Great to be

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<v Speaker 3>with you.

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<v Speaker 2>Yeah, it's been a while. If I may, just before

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<v Speaker 2>we get into kind of the world of venture debt,

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<v Speaker 2>I'm curious there you are in Silicon Valley. Is there

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<v Speaker 2>still any kind of hangover from the collapse of Silicon

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<v Speaker 2>Valley Bank, a longer lasting impact that you're seeing or

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<v Speaker 2>aware of. All right, hang on a second way, Thank

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<v Speaker 2>you yourself. I think we've got a little bit of

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<v Speaker 2>an audio problem, so we're going to hopefully figure that out.

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<v Speaker 2>I'll check in with David and we'll get to him

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<v Speaker 2>in just a moment. But I love talking to folks

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<v Speaker 2>like this. It's just kind of what's going on with startups.

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<v Speaker 4>Well, especially since so many Americans have started new business.

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<v Speaker 4>I mean, the dynamism of this economy is unbelievable.

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<v Speaker 2>You shared with me Torston stock over at Apollo about

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<v Speaker 2>forty five thousand new businesses have opened every month, every

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<v Speaker 2>month since the onset of COVID, fifty eight percent higher

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<v Speaker 2>than in twenty nineteen. That's massive.

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<v Speaker 4>I'm glad I shared it with you, and I'm glad

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<v Speaker 4>you remember, because I was thinking I saw a status

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<v Speaker 4>morning somewhere and I don't remember what I was to you.

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<v Speaker 2>You think I don't listen to your or read your messages. No,

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<v Speaker 2>but it's interesting. And when we were talking with Ben

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<v Speaker 2>Walter of Chase Business yesterday, just as we finished the

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<v Speaker 2>interview and we were done, we started talking about the

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<v Speaker 2>startup community and he said, too, it's been like on

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<v Speaker 2>fire of people starting up businesses and I guess reaching

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<v Speaker 2>out to them over at Chase Business Banking. So he

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<v Speaker 2>is seeing a very strong community. I feel like that's

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<v Speaker 2>another sign of action.

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<v Speaker 5>Can you imagine the four hundred and fifty thousand new

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<v Speaker 5>businesses fortun fifty every month since the onset of COVID night,

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<v Speaker 5>I said, forty five, four hundred and fifty thousand new

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<v Speaker 5>businesses a month.

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<v Speaker 4>I mean, I know this is a big country and

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<v Speaker 4>we have more than three hundred million people, but that's

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<v Speaker 4>a lot.

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<v Speaker 2>Yeah, a lot. So all right, let's get back to

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<v Speaker 2>David Sprain. We do have him. He's founder in CEO

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<v Speaker 2>of Runway Growth, so with us on Zoom and Silicon Valley.

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<v Speaker 2>So David, just to go back, I was asking you

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<v Speaker 2>about the impact of the collapse of SVB Silicon Valley Bank,

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<v Speaker 2>any long lasting impact that you've seen.

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<v Speaker 3>Well, I think there very much could be a long

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<v Speaker 3>lasting impact. It's too early to tell. SVB was primarily involved,

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<v Speaker 3>as it relates to venture debt, in making loans to

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<v Speaker 3>very early stage companies, often pre revenue, and these are

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<v Speaker 3>generally very small loans, and that is not the business

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<v Speaker 3>that I'm in. What we do is we make larger

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<v Speaker 3>loans to much more established companies. And the comment that

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<v Speaker 3>you played or the clip that you played with the

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<v Speaker 3>person from Chase saying that these companies may be too

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<v Speaker 3>early for debt, I think that could very well be true,

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<v Speaker 3>and it will take years to find out if the

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<v Speaker 3>activity that was dominated by Silicon Valley Bank and making

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<v Speaker 3>early stage loans, if that's picked up by somebody else,

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<v Speaker 3>it's not clear. My personal view is that that segment

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<v Speaker 3>of the market could just completely go away.

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<v Speaker 4>So what you're saying is we don't yet know if

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<v Speaker 4>debt is the right way to fund early stage companies?

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<v Speaker 1>Are there some?

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<v Speaker 4>Are there certain companies for whom debt makes more sense

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<v Speaker 4>though than others.

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<v Speaker 3>Absolutely, And Matt, I don't want to parse words, but

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<v Speaker 3>I'm not saying that debt is not appropriate for pre

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<v Speaker 3>profit companies. I'm saying debt might not be appropriate for

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<v Speaker 3>pre revenue companies. The average company that we lend to

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<v Speaker 3>is thirteen years old. It's doing more than sixty million

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<v Speaker 3>US dollars in revenue, and it's raised over one hundred

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<v Speaker 3>million of venture equity. And I think at that point

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<v Speaker 3>a company is making a huge mistake by not considering debt.

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<v Speaker 3>After you know, an entrepreneurial team has given away eighty

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<v Speaker 3>percent of the company and they're down to the point

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<v Speaker 3>that they need their last twenty or thirty or forty

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<v Speaker 3>or fifty million. They can use debt and they should

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<v Speaker 3>consider it. And that's the whole premise of my book

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<v Speaker 3>that all money is not created equal, and debt isn't

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<v Speaker 3>right for everybody, but it is something that particularly late

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<v Speaker 3>stage companies should absolutely consider.

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<v Speaker 2>What about when it comes to rates, And I'm just

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<v Speaker 2>curious how the higher rate environment has impacted that aspect.

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<v Speaker 2>Of this.

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<v Speaker 3>Yeah, for sure, rates, as everybody knows, have gone up

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<v Speaker 3>significantly five hundred basis points. So on the surface, that

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<v Speaker 3>seems like a lot. Debt is more expensive than it

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<v Speaker 3>was two years ago. But equity is wildly more expensive

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<v Speaker 3>than it was two years ago, largely because valuations for

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<v Speaker 3>public and private companies are down, and in some of

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<v Speaker 3>the hottest sectors it's down by sixty seventy eighty percent,

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<v Speaker 3>and the terms and conditions that are being offered with

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<v Speaker 3>equity are much much more onerous than they used to be.

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<v Speaker 3>So even the very best companies are trying to avoid

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<v Speaker 3>issuing new equity in this market, and so debt is attractive.

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<v Speaker 3>And you know, I guess to summarize that, debt is

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<v Speaker 3>cheaper than equity, and the difference between the two is

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<v Speaker 3>as high as it's ever been and is widening.

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<v Speaker 4>David, do you think that we were just talking about

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<v Speaker 4>how many new businesses are being formed post COVID Torsten

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<v Speaker 4>Slock sent slide this morning four hundred and fifty thousand

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<v Speaker 4>new businesses have opened every month. That first I was like, Wow,

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<v Speaker 4>what a dynamic economy. It's a lot sounds good, more

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<v Speaker 4>amazing than I thought on the other hand is that

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<v Speaker 4>maybe too many are too many people going out and

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<v Speaker 4>starting new businesses.

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<v Speaker 3>So I don't think so. I think that you have

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<v Speaker 3>to have a very wide top of funnel, and of

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<v Speaker 3>course not all of those companies are going to succeed,

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<v Speaker 3>and we're seeing that in the venture back market today,

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<v Speaker 3>where there is a culling of the herd. It's very natural,

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<v Speaker 3>it's normal, it's to be expected, it's nothing to panic about.

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<v Speaker 3>And many of the companies that were formed over the

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<v Speaker 3>last five years are not going to make it. It's

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<v Speaker 3>just part of the world in which we live and

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<v Speaker 3>part of having such a vibrant and robust innovation economy.

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<v Speaker 3>And then the other thing. I haven't dug into those numbers,

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<v Speaker 3>but I would bet of those four hundred and fifty thousand,

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<v Speaker 3>many of them are not even aspiring to become large companies.

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<v Speaker 3>They could be a dog walker, right, a dog yes,

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<v Speaker 3>great example, Carroll a dog walker, so that company may

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<v Speaker 3>never have more than a single employee. So I don't

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<v Speaker 3>think there's there's too many. There was definitely a situation

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<v Speaker 3>in the venture backed world where in an environment of

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<v Speaker 3>free money that more companies than we needed were created,

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<v Speaker 3>and we've seen this every cycle. You probably remember back

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<v Speaker 3>to the first Internet wave, where you know, there were

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<v Speaker 3>ten online pet food companies and the world didn't need that.

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<v Speaker 3>Most of them failed. But you know now there are

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<v Speaker 3>very legitimate, substantial pet food companies, online pet food companies

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<v Speaker 3>that will be around for a long time.

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<v Speaker 2>Hey, just got about twenty five seconds, thirty seconds, David,

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<v Speaker 2>how much of the companies maybe that you're working with

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<v Speaker 2>have some AI connection? Just quickly?

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<v Speaker 3>All of them?

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<v Speaker 2>Really? Seriously?

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<v Speaker 3>Well, yeah, I don't think any company in existence can

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<v Speaker 3>ignore AI. So it's certainly not true that all of

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<v Speaker 3>them are using AI at the center of their is this,

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<v Speaker 3>but I guarantee every CEO is thinking about it.

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<v Speaker 2>No, I'm just curious in terms of tapping the tapping

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<v Speaker 2>the markets. I'm so glad we got some time with you,

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<v Speaker 2>and we apologize for some of the tech problems at

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<v Speaker 2>the top. So glad we worked it out, David, Thank

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<v Speaker 2>you so much. David Sprang, founder and CEO of Runway,

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<v Speaker 2>Growth on Zoom and Silicon Valley. His new book just

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<v Speaker 2>out All money is not created equal, How entrepreneurs can

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<v Speaker 2>crack the code to getting the right funding for their

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<v Speaker 2>startup and our thanks to Torsten for that data point.

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<v Speaker 4>Always thanking toon slock.

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<v Speaker 2>He's always on it right