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