How I Invest with David Weisburd
E151: The Rise of Asset-Backed Credit w/Billy Libby
Tue, 01 Apr 2025
In this episode of How I Invest, Billy Libby, Co-Founder and CEO of Upper90, discusses how his firm is redefining venture capital through a hybrid investment model that combines equity and credit. He shares how Upper90 empowers founders to scale without excessive dilution and offers insights into navigating today’s venture landscape. Billy’s approach to alternative financing provides valuable lessons for entrepreneurs and investors alike.
Chapter 1: 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.
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Chapter 2: Why did Seamless' capital structure give them an advantage over Grubhub?
What kind of returns are you looking to get into these kind of investments?
Low to mid teens from the credit. And we want to make sure the company we're investing in is earning from the capital we're giving them more so they can service our debt. So venture debt, a lot of people often confuse with like what we call asset-backed debt. Venture debt's usually giving money to a company that's losing money.
And the way that you get paid back is by the company raising more equity. So it's more of a bet on equity supporting the company versus the company having profits to pay you and service your debt. So, you know, we wanna make sure if it's an NVIDIA chip, how much more is Crusoe making When they rent out that NVIDIA chip, then they're paying us in financing costs.
If Octane is going and doing power sport financing for jet skis and ATVs, how much more are they able to charge a consumer than they're paying us? And that's kind of the excess spread. That's a really important metric to make sure the company is providing a service that's valuable enough where they can charge a rate that's higher than their cost of funding.
And I think that's like a really important metric for us. And you have to find these niche businesses. We just financed a company called Sunbound and they're built technology software for nursing homes.
So nursing homes like Jason, when he started Seamless are offline and antiquated and they help like Toast or Seamless kind of control and capture all of your bill pay and finances as an independent nursing home. Somebody takes a bed in a nursing home And Sunbound's getting paid 60 days later from insurance.
Is there a way for us to kind of provide some of that capital up front and collect it for the nursing home? And that's where Upper 90 steps in as a capital partner to Sunbound to offer a new solution in a vertical niche industry.
This factoring-like product, it's not something that they could get from typical banks. And why are there no other solutions for that?
So there are. Being able to really move quickly. These are fast-scoring companies. They want somebody that can come in and solve their problem quickly. So that's one. Often, it might take a long time. Like imagine going through a mortgage and how long it takes to get approved. So there's just an inherent time cost when you're dealing with a bank. So that's one.
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