May 23, 2022 · 50m · capital-allocators
Billy Libby – Disruptive Venture Funding at Upper90 (Capital Allocators, EP.251)
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In this episode of Capital Allocators, host Ted Seides interviews Billy Libby, co-founder and CEO of Upper 90, exploring how quantitative trading principles inspired a novel hybrid credit-and-equity funding platform that provides non-dilutive growth capital to technology founders. Libby details the firm's data-driven underwriting methodology, alignment with founders, and specific asset-backed case studies across digital commerce and computing infrastructure.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 18.1% of the talking time here. How this is scored →
Ted as informed peer 4.1 Guest teaching 5.0 Guest disagreement 1.3 Ted pushing back 0.8
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 38:00 Critiquing growth equity terms and founder dilution
Billy forcefully condemns growth equity firms taking senior liquidation preferences at Series C/D and walking away with more exit proceeds than the founders who built the business.
Hardest push from Ted ▶ 30:20 Pushing on the refinancing treadmill vulnerabilityTed directly challenges Billy's lending model, pointing out that when deals work, borrowers immediately refinance to cheaper capital, questioning if Upper 90 is stuck on a constant sourcing treadmill.
Biggest teaching moment ▶ 16:40 Reframing equity reliance through FilmRise securitizationBilly explains how quant analysis revealed FilmRise was unnecessarily diluting equity to purchase streaming libraries, showing how off-balance sheet credit secured by contractual Netflix receivables was vastly superior.
Ted holds their own ▶ 33:08 Clarifying hybrid credit structure vs warrantsTed demonstrates sharp structural comprehension by intervening to cleanly summarize that Upper 90 deploys independent debt and upfront equity rather than relying on warrants or convertible kickers.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Billy Libby’s Early Background and Sports | 3 | 2 | 0 | 0 | Ted opens with standard biographical prompts regarding Billy's college athletic background and early career. Billy explains how team sports shaped his perspective and led to his early exposure to tech and electronic trading at Goldman Sachs. | |
| Operational Alpha and the Impact of Reduced Market Friction | 3 | 4 | 0 | 0 | Ted asks about lessons learned across 15 years in electronic trading. Billy details the concept of operational alpha, showing that dropping friction and transaction fees expands market volume exponentially. | |
| Knight Capital, Micro-Pricing, and Angel Advising | 3 | 5 | 1 | 0 | Billy explains how Knight Capital and Citadel revolutionized market making by segmenting retail order flow from toxic institutional flow like D.E. Shaw to tailor micro-pricing. Ted listens as Billy transitions into his early angel advisory period. | |
| Founding the Quant-Founder Investment Club | 3 | 4 | 1 | 0 | Billy describes dinner conversations with Jason Finger of Seamless, recognizing the complementary needs of tech founders desiring yield and quant founders wanting early-stage tech access, culminating in their investment club. | |
| The FilmRise Case Study and Genesis of Upper 90 | 4 | 6 | 2 | 1 | Billy illustrates the genesis of Upper 90 via FilmRise, where streaming data was used to securitize BBC TV catalog rights against Netflix receivables. He firmly rejects traditional venture debt in favor of non-dilutive off-balance sheet asset financing. | |
| Upper 90's Investment Thesis and Sourcing Advantage | 4 | 5 | 2 | 1 | Billy argues traditional venture capital and private equity models have grown complacent without fee pressure. Ted asks whether this formed Upper 90's core thesis, and Billy outlines their LP-driven proprietary sourcing engine. | |
| Underwriting Horizontal FinTech and Digital Platform Receivables | 5 | 6 | 1 | 1 | Ted probes on how Upper 90 isolates lendable assets in early-stage tech. Billy explains treating fintech as a horizontal layer across platforms like Amazon, Shopify, and Apple to factor short-duration receivables. | |
| Credit Risk Diligence, Excess Spread, and Excluded Sectors | 5 | 6 | 2 | 1 | Ted asks about idiosyncratic underwriting risks. Billy outlines requiring high excess spread (10%+) and direct cash-flow control, while detailing explicit exclusions for binary regulatory risks like e-scooters and income sharing agreements. | |
| Sponsor: Ridgeline | 5 | 5 | 2 | 2 | After the sponsor break, Ted challenges Billy on the refinancing treadmill problem where winning credits quickly seek cheaper bank debt. Billy explains how combining debt with upfront equity co-investment aligns incentives rather than creating friction. | |
| Portfolio Construction and Upfront Debt-Equity Allocation | 5 | 6 | 1 | 1 | Ted clarifies the distinction between Upper 90's upfront equity allocation versus warrant kickers. Billy confirms their 80-90% debt and 10-20% equity construction and details value-add balance sheet advisory like QSBS tax optimization. | |
| Challenging Dilution Dynamics in Venture and Growth Equity | 5 | 6 | 2 | 2 | Ted questions how Upper 90 maintains its competitive advantage and scales against giant growth equity funds. Billy attacks excessive founder dilution (50%+ post-Series B) and demonstrates edge using the Crusoe Energy project finance case study. | |
| Institutional Allocator Engagement and Graduation Facilities | 4 | 5 | 1 | 1 | Ted asks about Upper 90's traction with institutional LPs. Billy discusses addressing credit tax inefficiency and partnering with larger capital providers to establish graduation facilities for maturing portfolio companies. |
Statements from this episode (23)
Libby: Venture capital industry has barely changed in twenty years
“It's a random walk, and I think that's helped us with Upper 90 because we came with fresh eyes into the VC world that hasn't changed that much in 20 years.”
Libby: GETCO executed more orders in a minute than Goldman did daily
“Just to give people a sense, GetGo traded more orders in a minute than all of Goldman's clients at the time in a day.”
Libby: Market makers lose trading against quant firms like D.E. Shaw
“When trading on the New York Stock Exchange, every client effectively gets charged the same price. So if you have D.E. Shaw, which if they're trading against you, they're usually winning. Like they know at this microsecond that something's mispriced, and if yo…”
Libby: True innovation is in tech, not finance, which relies on scale
“What happened is, if we're honest with ourselves, the real change is happening in the tech world. There's not much innovation happening in finance. It's really operational alpha and scale.”
Libby: Upper 90 syndicate built off-balance-sheet credit facility for FilmRise
“What ended up happening with FilmRise was we created, in partnership with some other groups, an off-balance sheet credit facility securitized by Netflix payments.”
Libby: Venture debt is just a tool to underwrite VC firms
“Venture debt is just a tool to underwrite the venture firms.”
Libby: Lower-cost ETF equivalents will disrupt traditional venture capital fee structures
“I think that that's going to come to the venture world too. It's been a momentum trade. And so if you're Sequoia or Forerunner or Bessemer, you have services and tools. I think it's going to be hard to prove that you should be getting two in 20 versus an ETF e…”
Libby: Upper90 seeks businesses generating 25% to 30% annualized book yields
“So we're looking for businesses that have meaningfully more book yield, 25, 30% annualized book yield, so they can service our 12 to 14%.”
Libby: Octane Lending achieves 10% excess spread versus 1% in subprime
“His cost of capital's high single digits. His book yields on excess spread is like 10 plus percent. Subprime auto has a one percent excess spread because it's well understood by banks.”
Libby: Large lenders misprice binary regulatory risks on shared scooter fleets
“So we decided not to do it, but because there's a lot of capacity, a lot of these bigger lenders and banks do that stuff. But I think they're mispricing that Binary outcome that we can't really underwrite.”
Libby: Upper90 refuses to provide debt without an equity stake
“So we will not invest in a business or provide debt, and we can't also be an equity partner.”
Libby: Non-lead venture capital firms offering generic operational help are redundant
“If you're not going to get one of the top VCs, you don't need five VCs that are all doing the same thing. Like, oh, we'll help you with talent, and we'll do this and that. 10 years ago that mattered, but now all those tools are available to the companies.”
Libby: Hybrid credit combining debt and equity will be investing's future
“And so our view is that this will be the future of investing where we can offer this kind of hybrid credit is what we call it because founders are going to want it.”
Upper 90 structures deals as 10-20% equity and 80-90% debt upfront
“We make that decision up front. 10 to 20% in equity, 80 to 90% in debt.”
Libby: Founders can multiply QSBS tax exemptions to $25M using trusts
“Well, you can set up five trusts. And get five times a QSPS exemption. And then upon exit, you can roll them into one entity. So just think about that. Like you have a five million dollar tax free gain or a twenty five million dollar tax free gain.”
Libby: Founders Face 20% Dilution in Seed and Over 50% by Series B
“Founders right now face 20% dilution on average through the seed round and greater than 50% after the series B.”
Libby: Late-stage investors out-earning founders at exit will fundamentally change
“A private equity firm or a growth equity firm coming into a series C or D sitting at the top of the caps table with liquidity preferences and all these downside protections, and they're ultimately earning more than the founders at exit. To me, it seems like th…”
Libby: US flared natural gas exceeds Africa and Japan's total energy use
“There's more natural gas that gets flared in the US every year than the amount of energy consumed in Africa and Japan.”
Libby: Upper90 Scaled Crusoe Energy Credit Facility to $40 Million
“So we ended up giving them a five million dollar project finance facility at 15%, and then it went to fifteen million. And we ended up scaling with them to forty million because it had nothing to do with being a crypto Bitcoin mining startup.”
Libby: Non-Mega Mid-Tier Credit Funds Face a Competitive Disadvantage
“I actually think bigger credit funds that aren't the biggest are actually, in my opinion, a competitive disadvantage because they don't have the cheapest cash capital and they can't be nimble anymore.”
Libby: Finance professionals pretend to be risk-seeking but are actually risk-averse
“People in finance, we pretend that we're risk-on, but we're really risk-averse, and you need someone to help you build up the confidence to do that sometimes.”