Capital Provider Sentiment Survey + ABCs on the Venture Debt BDCs
Perspectives and Quick Takes From Bigfoot and Our Community of B2B Software Operators and Investors
Happy Wednesday,
Welcome back to another edition of the Bigfoot Bi-Weekly Roundup.
This week I cover:
Bigfoot’s Q2 2023 Capital Provider Sentiment Survey (5 minutes appreciated)
Some more thoughts on Venture Debt BDCs (Pitchbook article takeaways)
A bit on viewing relationships as a core product
Q2 2023 Capital Provider Sentiment Survey
If you could spare 3 minutes this morning to share your thoughts for our Q2 2023 capital provider sentiment survey, I’d really appreciate it. We’ll digest, synthesize and share the results back out in July.
Click the image below to see the results from last year’s survey (write-up and deck).
Takeaways From Pitchbook’s “Venture Debt BDCs Thrive in VC, Bank Pullback”
I previously posted my 6 takeaways from Pitchbook’s analyst note on the 5 venture debt BDCs from a couple of weeks back. My main takeaway from this shorter piece is that the data presented does not convey “thriving” for the 5 venture debt BDCs.
TLDR; Hercules may be the exception as a venture BDC actually “thriving”. At least, they appear to be a cut above their peers in terms of having:
consistent improvement in their quarterly net income over the past 4 quarters compared to bumpier rides for their peers (see chart below)
positive Q1 results - only one with net realized gain on their loan book
meaningful dry powder - $550M, compared to average over $150M for each of their peers. Hercules’ dry powder is about equivalent to the sum of their peers
This may come down to Hercules having more scale and using that to their advantage from a pricing perspective to hold market share. As you can see below, they started below their peers in pricing 4 quarters back and have continued to lag until the most recent quarter.
Looking at the chart below, Hercules appears to be the only BDC showing consistently increasing net interest income over the last 4 quarters. The rest have shown some improvement, but it’s been a bit bumpier (and not robust).
Hercules is also the only one with net realized gains on its portfolio for Q1.
Hercules has about as much dry powder as the 4 other BDCs combined.
On the whole, I would not say (again) that the BDCs are adequately equipped with dry powder to support portfolio growth. Comparing the $1.2BN in dry powder for the 5 BDCs against their $1.6BN in unfunded commitments as of Q1 2023, they have 73% coverage against currently unfunded commitments, which does not even consider the ability to fund new origination (of course, I’m also not giving credit for any return and recycling of capital from repaid loans).
To wrap it up, according to John Markell, Managing Partner at debt advisory firm, Armentum Partners:
“The single biggest beneficiary of SVB's demise is Hercules Capital. They're underwriting a lot of riskless debt, and in many cases, they're not even refinancing loans from their own existing borrowers.” (source interview)
Relationships as a Product
I wrote this post a couple of years ago as a synthesis of something I’ve long believed in and pursued, the power and enjoyment of building and fostering relationships and the ability to think of relationships as a scalable, differentiated core product in our capital deployment and company engagement model.
I recently came across In Revenue Capital's manifesto, which very much aligns with our approach, saying things like
The same principles we used to build our own companies held true for our clients. At the center of everything, resides relationships and trust as the magic ingredient
&
How do you scale both relationships and trust? The answer lies in the creation of thriving Partner Ecosystems.
I was able to chat with Justin and Sean there last week. They are writing seed checks into vertical B2B SaaS companies and deploying their GTM expertise. Thanks to David Paul at DWP Capital (also Seed/A vertical SaaS investor) for the intro. Let me know if you want an intro to In Revenue and/or DWP to learn about their mandates / share deal flow.
At the end of the day, this newsletter is for our ecosystem partners, and I hope it serves as a catalyst for informing us both and expanding/deepening our relationships. Your engagement is meaningful.
If you can think of anyone you feel would benefit from reading our newsletter, please go ahead and forward it along.
About Bigfoot Capital
Bigfoot Capital offers growth-oriented loans for B2B software companies with $2M- $20M in revenue. We pride ourselves on partnering with companies and their stakeholders to provide a capital partnership that comes with stability and support.
If you operate or support a B2B software business and want to learn more about alternative capital options that preserve equity, get in touch with our team today.