E151: The Rise of Asset-Backed Credit w/Billy Libby

Episode Summary

Executive Summary: The conversation explains how Upper 90 uses asset-backed credit to help founders preserve equity, season new asset classes, and bridge companies from early-stage financing to institutional credit. It highlights examples from fintech, equipment, and roll-ups, arguing that speed, flexibility, and alignment matter more than cheap capital alone. The discussion also covers fund sizing, diversification, LP strategy, and the operational maturity needed to attract institutions.

Main Topics: Credit as a founder-friendly alternative to excessive equity dilution (Priority: 5/5): The speaker argues that many founders over-rely on equity and miss opportunities to use credit to grow while retaining more ownership, using the Seamless/Grubhub example to show how capital structure can materially affect outcomes. Seasoning new asset classes before institutional adoption (Priority: 5/5): Upper 90 specializes in financing assets or business models that are not yet widely understood by banks, then helping prove performance until larger institutions like Blackstone can refinance them at scale. Structuring tailored facilities around asset life and payback (Priority: 4/5): Deals are structured around the durability and monetization of the asset, especially for fast-moving technology like NVIDIA GPUs, with emphasis on short duration, fast amortization, and payback under two years. What startups and capital-intensive businesses should finance with debt (Priority: 5/5): The discussion broadens credit use beyond fintech to equipment, receivables, acquisitions, roll-ups, and niche vertical software, arguing these companies often benefit from debt once unit economics and reporting are established. Institutional readiness: fund size, operations, and team quality (Priority: 4/5): To win institutional capital, a credit fund needs scale, compliance, reporting, talent, and differentiated sourcing. The speaker explains the transition from a small, founder-driven fund to a more institutional platform. LP network strategy and sourcing advantages (Priority: 3/5): Upper 90’s large base of founder LPs is framed as a sourcing and deal-winning engine rather than only a capital source, with cross-network conversations producing unique opportunities. Returns, risk, and the role of equity participation (Priority: 4/5): The speaker distinguishes asset-backed credit from venture debt, emphasizes excess spread and debt serviceability, and explains why Upper 90 takes small equity positions alongside debt to improve alignment.

Key Arguments: Founders often misunderstand credit and default to equity even when debt could preserve ownership and improve capital efficiency. A small, nimble private credit fund can help early, before an asset class becomes well understood and crowded by large institutions. The best credit opportunities are those with clear collateral, visible cash flows, or proven unit economics—not purely speculative venture bets. Facilities should be tailored to the asset’s life, technology obsolescence risk, and refinancing path, as shown with NVIDIA GPUs. Alignment improves when lenders have some equity exposure and are not purely temporary capital providers. Speed, flexibility, and certainty of capital often matter more to founders than the absolute cheapest rate. Businesses should bring in credit earlier if capital is core to their strategy, rather than waiting until they are forced to retrofit debt into the model. Institutional investors back managers who can originate unique deals, generate co-investment opportunities, and maintain institutional-grade operations. Diversification is critical in credit; position sizing should generally remain modest to manage downside. Refinancing by banks or larger institutions is a positive outcome and can be a natural time to seek equity liquidity as well.

Data Points: Crusoe initial facility: $8 million - Upper 90’s first financing for Crusoe’s generator before scaling into NVIDIA GPU financing Crusoe expanded facility: $40 million - Facility grew as the business performed and became more financeable Upper 90 fund size: around $400 million - Described as the firm’s recent fund size in the private credit market Typical facility size: $10 million to $20 million - Common deal size Upper 90 targets for early-stage or niche opportunities Equity participation alongside debt: 10% equity for every debt investment - Used to align the firm with the company’s long-term success Target break-even on GPU deal: under 2 years - The NVIDIA GPU facility was structured for fast payback and amortization Seamless equity size: hundreds of thousands of dollars - Early equity raise for Seamless rather than large venture rounds LP base: almost 300 LPs - Upper 90’s investor network, heavily weighted toward founders Position sizing goal: 3% to 4% per company - Desired exposure level to maintain diversification Minimum institutional fund size discussed: under $1 billion for credit - Speaker’s view of the size range where a fund can still do meaningful $10M-$20M facilities Corporate investment in Stacks Engineering: $22 million facility - Used to finance barge production after the first barge was proven with equity Seamless management ownership: majority of the business - Result of using more credit and less equity than Grubhub Grubhub management ownership: minority of the business - Contrasted with Seamless to show how financing choices affect cap table outcomes Portfolio concentration example: 6% customer exposure vs 5% limit - Illustrates how concentration limits can block otherwise attractive financing opportunities

Pivotal Quotes: "most founders are just they don't think of these tools, they're not taught about credit." — Billy: Explaining why founders often miss debt as a strategic growth tool "the most important thing is having a fast payback period." — Billy: Describing how the NVIDIA GPU facility was structured "certainty of capital. Speed, flexibility, can I use this in a way I need it? And then cost." — Billy: Summarizing what founders value most in a capital partner

Implications: Founders in capital-intensive businesses should treat credit as a strategic tool early, not an afterthought. For lenders, the opportunity is in niche, underwritten assets and fast execution. Institutional capital will keep flowing to managers who can prove discipline, sourcing edge, and alignment.