Speaker 1: This is Bloomberg Business Week with Carol Messer and Tim
Speaker 1: Stenebeck on Bloomberg Radio.
Speaker 2: So we love talking about the small business and startup communities.
Speaker 2: We talked with Jesse Draper last week, who actually is
Speaker 2: in our weekend show, and then on small business yesterday
Speaker 2: we talked with Ben Walter, CEO of Chase Business Banking,
Speaker 2: who gave us some insight on small business lending, especially
Speaker 2: when it comes to startups and what not to do.
Speaker 1: Listen up, everybody, Debt is not the way to start
Speaker 1: a business. It's not really what. That's equity and there
Speaker 1: are markets for that. There are ways to get raise
Speaker 1: equity money. You know, sometimes people do it on the
Speaker 1: credit card and their personal credit and that's okay, it's bootstrapping.
Speaker 1: But business credit is really designed for businesses who have
Speaker 1: been in business for two years or more in.
Speaker 2: Have cash flow. All right. That was Ben Walter, CEO
Speaker 2: of Chase Business Banking yesterday. But we have a guest
Speaker 2: today who is in the business adventure debt loans for
Speaker 2: early stages startups with venture capital backing. Delighted to have
Speaker 2: with us David Sprang, his founder and CEA of CEO
Speaker 2: excuse me, founder and CEO of Runway Growth on Zoom
Speaker 2: in Silicon Valley. He's got a new book out to
Speaker 2: All Money Is Not Created Equal, How entrepreneurs can crack
Speaker 2: the code to getting the right funding for their startup. David,
Speaker 2: nice to have you back here on Bloomberg. How are you.
Speaker 3: I'm doing very well, thanks, Kerrel Tory. Great to be
Speaker 3: with you.
Speaker 2: Yeah, it's been a while. If I may, just before
Speaker 2: we get into kind of the world of venture debt,
Speaker 2: I'm curious there you are in Silicon Valley. Is there
Speaker 2: still any kind of hangover from the collapse of Silicon
Speaker 2: Valley Bank, a longer lasting impact that you're seeing or
Speaker 2: aware of. All right, hang on a second way, Thank
Speaker 2: you yourself. I think we've got a little bit of
Speaker 2: an audio problem, so we're going to hopefully figure that out.
Speaker 2: I'll check in with David and we'll get to him
Speaker 2: in just a moment. But I love talking to folks
Speaker 2: like this. It's just kind of what's going on with startups.
Speaker 4: Well, especially since so many Americans have started new business.
Speaker 4: I mean, the dynamism of this economy is unbelievable.
Speaker 2: You shared with me Torston stock over at Apollo about
Speaker 2: forty five thousand new businesses have opened every month, every
Speaker 2: month since the onset of COVID, fifty eight percent higher
Speaker 2: than in twenty nineteen. That's massive.
Speaker 4: I'm glad I shared it with you, and I'm glad
Speaker 4: you remember, because I was thinking I saw a status
Speaker 4: morning somewhere and I don't remember what I was to you.
Speaker 2: You think I don't listen to your or read your messages. No,
Speaker 2: but it's interesting. And when we were talking with Ben
Speaker 2: Walter of Chase Business yesterday, just as we finished the
Speaker 2: interview and we were done, we started talking about the
Speaker 2: startup community and he said, too, it's been like on
Speaker 2: fire of people starting up businesses and I guess reaching
Speaker 2: out to them over at Chase Business Banking. So he
Speaker 2: is seeing a very strong community. I feel like that's
Speaker 2: another sign of action.
Speaker 5: Can you imagine the four hundred and fifty thousand new
Speaker 5: businesses fortun fifty every month since the onset of COVID night,
Speaker 5: I said, forty five, four hundred and fifty thousand new
Speaker 5: businesses a month.
Speaker 4: I mean, I know this is a big country and
Speaker 4: we have more than three hundred million people, but that's
Speaker 4: a lot.
Speaker 2: Yeah, a lot. So all right, let's get back to
Speaker 2: David Sprain. We do have him. He's founder in CEO
Speaker 2: of Runway Growth, so with us on Zoom and Silicon Valley.
Speaker 2: So David, just to go back, I was asking you
Speaker 2: about the impact of the collapse of SVB Silicon Valley Bank,
Speaker 2: any long lasting impact that you've seen.
Speaker 3: Well, I think there very much could be a long
Speaker 3: lasting impact. It's too early to tell. SVB was primarily involved,
Speaker 3: as it relates to venture debt, in making loans to
Speaker 3: very early stage companies, often pre revenue, and these are
Speaker 3: generally very small loans, and that is not the business
Speaker 3: that I'm in. What we do is we make larger
Speaker 3: loans to much more established companies. And the comment that
Speaker 3: you played or the clip that you played with the
Speaker 3: person from Chase saying that these companies may be too
Speaker 3: early for debt, I think that could very well be true,
Speaker 3: and it will take years to find out if the
Speaker 3: activity that was dominated by Silicon Valley Bank and making
Speaker 3: early stage loans, if that's picked up by somebody else,
Speaker 3: it's not clear. My personal view is that that segment
Speaker 3: of the market could just completely go away.
Speaker 4: So what you're saying is we don't yet know if
Speaker 4: debt is the right way to fund early stage companies?
Speaker 1: Are there some?
Speaker 4: Are there certain companies for whom debt makes more sense
Speaker 4: though than others.
Speaker 3: Absolutely, And Matt, I don't want to parse words, but
Speaker 3: I'm not saying that debt is not appropriate for pre
Speaker 3: profit companies. I'm saying debt might not be appropriate for
Speaker 3: pre revenue companies. The average company that we lend to
Speaker 3: is thirteen years old. It's doing more than sixty million
Speaker 3: US dollars in revenue, and it's raised over one hundred
Speaker 3: million of venture equity. And I think at that point
Speaker 3: a company is making a huge mistake by not considering debt.
Speaker 3: After you know, an entrepreneurial team has given away eighty
Speaker 3: percent of the company and they're down to the point
Speaker 3: that they need their last twenty or thirty or forty
Speaker 3: or fifty million. They can use debt and they should
Speaker 3: consider it. And that's the whole premise of my book
Speaker 3: that all money is not created equal, and debt isn't
Speaker 3: right for everybody, but it is something that particularly late
Speaker 3: stage companies should absolutely consider.
Speaker 2: What about when it comes to rates, And I'm just
Speaker 2: curious how the higher rate environment has impacted that aspect.
Speaker 2: Of this.
Speaker 3: Yeah, for sure, rates, as everybody knows, have gone up
Speaker 3: significantly five hundred basis points. So on the surface, that
Speaker 3: seems like a lot. Debt is more expensive than it
Speaker 3: was two years ago. But equity is wildly more expensive
Speaker 3: than it was two years ago, largely because valuations for
Speaker 3: public and private companies are down, and in some of
Speaker 3: the hottest sectors it's down by sixty seventy eighty percent,
Speaker 3: and the terms and conditions that are being offered with
Speaker 3: equity are much much more onerous than they used to be.
Speaker 3: So even the very best companies are trying to avoid
Speaker 3: issuing new equity in this market, and so debt is attractive.
Speaker 3: And you know, I guess to summarize that, debt is
Speaker 3: cheaper than equity, and the difference between the two is
Speaker 3: as high as it's ever been and is widening.
Speaker 4: David, do you think that we were just talking about
Speaker 4: how many new businesses are being formed post COVID Torsten
Speaker 4: Slock sent slide this morning four hundred and fifty thousand
Speaker 4: new businesses have opened every month. That first I was like, Wow,
Speaker 4: what a dynamic economy. It's a lot sounds good, more
Speaker 4: amazing than I thought on the other hand is that
Speaker 4: maybe too many are too many people going out and
Speaker 4: starting new businesses.
Speaker 3: So I don't think so. I think that you have
Speaker 3: to have a very wide top of funnel, and of
Speaker 3: course not all of those companies are going to succeed,
Speaker 3: and we're seeing that in the venture back market today,
Speaker 3: where there is a culling of the herd. It's very natural,
Speaker 3: it's normal, it's to be expected, it's nothing to panic about.
Speaker 3: And many of the companies that were formed over the
Speaker 3: last five years are not going to make it. It's
Speaker 3: just part of the world in which we live and
Speaker 3: part of having such a vibrant and robust innovation economy.
Speaker 3: And then the other thing. I haven't dug into those numbers,
Speaker 3: but I would bet of those four hundred and fifty thousand,
Speaker 3: many of them are not even aspiring to become large companies.
Speaker 3: They could be a dog walker, right, a dog yes,
Speaker 3: great example, Carroll a dog walker, so that company may
Speaker 3: never have more than a single employee. So I don't
Speaker 3: think there's there's too many. There was definitely a situation
Speaker 3: in the venture backed world where in an environment of
Speaker 3: free money that more companies than we needed were created,
Speaker 3: and we've seen this every cycle. You probably remember back
Speaker 3: to the first Internet wave, where you know, there were
Speaker 3: ten online pet food companies and the world didn't need that.
Speaker 3: Most of them failed. But you know now there are
Speaker 3: very legitimate, substantial pet food companies, online pet food companies
Speaker 3: that will be around for a long time.
Speaker 2: Hey, just got about twenty five seconds, thirty seconds, David,
Speaker 2: how much of the companies maybe that you're working with
Speaker 2: have some AI connection? Just quickly?
Speaker 3: All of them?
Speaker 2: Really? Seriously?
Speaker 3: Well, yeah, I don't think any company in existence can
Speaker 3: ignore AI. So it's certainly not true that all of
Speaker 3: them are using AI at the center of their is this,
Speaker 3: but I guarantee every CEO is thinking about it.
Speaker 2: No, I'm just curious in terms of tapping the tapping
Speaker 2: the markets. I'm so glad we got some time with you,
Speaker 2: and we apologize for some of the tech problems at
Speaker 2: the top. So glad we worked it out, David, Thank
Speaker 2: you so much. David Sprang, founder and CEO of Runway,
Speaker 2: Growth on Zoom and Silicon Valley. His new book just
Speaker 2: out All money is not created equal, How entrepreneurs can
Speaker 2: crack the code to getting the right funding for their
Speaker 2: startup and our thanks to Torsten for that data point.
Speaker 4: Always thanking toon slock.
Speaker 2: He's always on it right