For insight into the 2023 venture debt market, DealFlow caught up with David Spreng, Founder, Chairman, CEO and CIO of Runway Growth Capital. David is a seasoned and respected Silicon Valley-based investment executive, with 30 years of experience as a venture capitalist and growth debt lender. As a VC, he has been active in the formation and development of nearly 50 technology companies with 18 IPOs and 14 trade-sales. He was ranked four times by Forbes magazine on their annual Midas List as one of the top 50 venture capitalists; in 2006 he was ranked the #8 VC. He transitioned into venture debt and founded Runway in 2015. David is one of the featured speakers at The Venture Debt Conference coming up March 31 in New York City.
DealFlow: What is the biggest pain point for your firm and your clients right now?
David Spreng: So I think the biggest pain point within our portfolio and for our clients and really across the entire ecosystem is just access to capital. Everybody’s worried about how they are going to access capital in the future. And, you know, even companies that have a runway of 36 months or 24 months, they’re being advised by their boards and their investors to extend that runway. So, people are very, very worried about where they’re going to get money. There’s also a lot of concern about the economy and how to plan for growth in a very uncertain environment. And so we’re having a lot of folks come to us and ask advice on how do you plan with this kind of uncertainty? What we always do is plan very conservatively, meaning, for planning purposes we expect there to be a recession, and if there’s not, great, we’ll have plan B and C ready to go so that we can continue to invest in growth.
So for most companies what they’re doing is coming up with a very conservative plan, but being prepared, if the opportunity presents itself, to accelerate investment in growth, and then making sure there is access to the required capital. One of the big concerns that people have is, ‘do my VCs really have the dry powder that they say they do?’ That’s something I wouldn’t take for granted as the CEO or CFO or management team of a venture backed company. Making sure that you have diversified sources of capital and ideally, understanding what their dry powder is and how committed they are to you as a company.
DealFlow: To be clear, which do you think is a bigger concern for your clients right now? Is it access to capital, or is it the cost of that capital that they’re able to access?
Spreng: So the best companies are, of course, thoughtful about the cost of capital, but as you continue down the spectrum, survival is more important than the cost of capital. As a result, we arere seeing all kinds of new sources of funding entering the market. these new players are often described under the big umbrella as structured capital, whether it be structured debt or structured equity, which is really designed to take advantage of troubled situations. For many folks, of course, the cost of capital becomes irrelevant if the option is extinction. So, the companies that we deal with, which are the largest and latest stage and hopefully least risky companies within this broad universe of pre-profit companies, they tend to have a lot of choices, and they’re still thoughtful about cost of capital. That’s where venture debt has a very strong value proposition today. Because, relative to equity, which is as expensive as it’s ever been, debt is a good deal these days. Read more.
