Billy Libby – Disruptive Venture Funding at Upper90 (Capital Allocators, EP.251)

Episode Summary

Executive Summary: Billy Libby traces Upper 90’s origin from a tech-and-quant investor club into a hybrid credit-and-equity platform financing early-stage tech businesses with asset-backed or receivable-based capital. He argues that data, short-duration financing, and capital efficiency can replace dilutive equity in many startup contexts, while aligning with founders as a partner rather than a pure lender.

Main Topics: Billy Libby’s background in trading and fintech (Priority: 5/5): Libby explains how sports, entrepreneurship, and early exposure to online banking led him into Goldman’s electronic trading world, where he learned about data-driven markets, customer segmentation, and the power of reducing transaction friction. Formation of the investment club that became Upper 90 (Priority: 5/5): After meeting Jason Finger, Libby helped create a monthly club of tech founders and quantitative investors to share ideas and invest together. The club exposed a gap between two ecosystems and eventually evolved into Upper 90. Upper 90’s hybrid credit/equity model (Priority: 5/5): Upper 90 provides debt to companies with identifiable assets, receivables, or cash flows while also taking equity stakes to stay aligned. The firm focuses on “equity-like returns for debt-like risk” rather than traditional venture debt. Underwriting principles and risk limits (Priority: 5/5): Libby details the conditions for lending: diversified receivables, verifiable data, excess spread, and recoveries on tangible assets. The firm avoids binary regulatory risks and hard-to-underwrite tail outcomes such as scooters or income-share agreements. Value-add to founders and capital efficiency (Priority: 4/5): Upper 90 aims to help founders own more of their companies by delaying dilution, optimizing balance sheets, using tax tools like QSBS, and financing assets more efficiently than pure equity capital. Scalability, sourcing, and future partnerships (Priority: 4/5): The firm’s sourcing is driven heavily by its LP/community network, and Libby sees a role for institutional capital partners to provide graduation facilities and cheaper capital as companies scale.

Key Arguments: Reducing friction in markets expands total volume and can more than offset lower per-transaction revenue, a lesson Libby learned in trading and applies to startup financing. The venture and growth equity model is under pressure because founders often give up too much ownership; alternative capital structures can preserve equity and improve outcomes. Data makes underwriting more precise, allowing lenders to verify cash flows directly from platforms like Amazon, Apple, Netflix, and bank accounts. Upper 90 is not traditional venture debt; it lends only where the underlying asset or receivable can stand on its own, and it also invests equity to stay aligned. Many online-native businesses need working capital or asset financing long before traditional banks can understand them, creating a large white space for specialized lenders. The firm avoids binary regulatory exposure because some tail risks cannot be priced, even when unit economics look attractive. Smaller, more focused capital pools may outperform large funds because they can stay nimble, be selective, and avoid financial engineering. Upper 90’s differentiation comes from sourcing through founders/LPs, not from generic deal flow or broad brand-driven venture competition.

Data Points: Capital deployed: $1 billion - Upper 90 has deployed this amount of capital LP base: More than 300 entrepreneurs - Upper 90’s investor base Team size: Almost 25 people - Upper 90’s credit and investing team LP/community count: 400 LPs - Libby says the firm now has 400 LPs LP composition: 80% business builders - Most LPs are entrepreneurs or operators rather than finance professionals Trade commission context: 1–2 pennies per share - Libby cites historical average commissions in trading Return target on credit book: 25–30% annualized book yield - The level Upper 90 seeks to support its lending economics Debt pricing: 12–14% - Approximate yield Upper 90 wants to earn on many loans Octane Lending example: $100 billion industry - Libby uses PowerSports financing as an example of a large niche Crusoe initial facility: $5 million - First project finance facility for Crusoe Energy Crusoe expanded facility: $15 million then $40 million - The facility scaled as the company proved itself Crusoe valuation: Almost $2 billion - Libby cites this as an example of upside from early partnership Seed dilution: 20% on average - Libby says founders face this dilution at seed Series B dilution: Greater than 50% - Libby cites average founder dilution by Series B QSBS tax exemption: $5 million per founder - Standard qualified small business stock exemption discussed QSBS trust example: $25 million tax-free gain potential - Libby describes using five trusts to multiply QSBS benefits FilmRise content sources: Netflix, Hulu, Amazon, YouTube, Roku - Data sources used to identify valuable content trends Netflix payment tenor: Five-year contractual payment - Used to support off-balance-sheet financing for content rights Amazon seller payment lag: 14 days - Payability factors this receivable for marketplace sellers Apple/Google developer payment lag: 60 days - Bravo Capital factors receivables from app platforms Scooter payback period: Three months - Used to illustrate why the unit economics looked attractive but the regulatory risk was unacceptable Bitcoin mining energy example: Natural gas flared in the U.S. exceeds energy consumed in Africa and Japan - Libby cites this to explain Crusoe’s thesis Founder ownership pressure: 20% dilution at seed and over 50% by Series B - Used to argue that equity is becoming too expensive Portfolio return structure: 10%–20% equity / 80%–90% debt - Upper 90 typically decides upfront how it will participate

Pivotal Quotes: "“The real change is happening in the tech world. There’s not much innovation happening in finance.”" — Billy Libby: Explaining why Upper 90 focuses on technology-enabled businesses and financing solutions rather than traditional finance innovation "“It’s not how much you raise, it’s how much you own.”" — Billy Libby: Describing Upper 90’s philosophy of helping founders preserve ownership through more efficient capital structures "“We believe we’re getting equity-like returns for debt-like risk versus the other way around.”" — Billy Libby: Summarizing the firm’s core investment thesis for hybrid credit

Implications: The episode suggests startup finance is shifting toward data-rich, asset-backed, founder-friendly structures. For investors, niche underwriting and alignment may outperform generic capital. For founders, smarter use of debt could reduce dilution and extend ownership.