August 31, 2022
The new member participants in the Illinois Venture Capital Association (IVCA) keeps expanding, giving the current membership new opportunities for networking, in addition to offering support and partnerships. This advantage keeps evolving the association and its advocation of Venture Capital, Private Equity and satellite industries. The latest new member is Runway Growth Capital, a venture debt financing firm for late and growth-stage companies.
The following is a Q&A profile with Runway Growth Capital which explores the firm’s background and their expectations for interacting with the IVCA.
New Member: Runway Growth Capital
Representative: Andy Mizerek, Director of Marketing
IVCA: What is a brief history and background on Runway Growth Capital?
Runway Growth Capital: Runway Growth Capital LLC was founded in 2015 by industry veteran and four-time ‘Forbes Midas List’ honoree David Spreng, to be the investment advisor to investment funds, including Runway Growth Finance Corp. [Nasdaq: RWAY], a business development company, and other private funds. The firm originates senior secured loans of $10 million to $75 million to late and growth-stage companies as a complement, supplement, or replacement to equity financing.
Our mission is to support passionate entrepreneurs in building great businesses. We lend capital to companies looking to fund growth with minimal dilution – in turn, we aim to produce superior risk adjusted returns for our investors. We do this through our public BDC [Runway Growth Finance Corp.] and other private funds operating from office locations in Silicon Valley [Woodside], San Diego [La Jolla], Chicago, and New York City. Since inception, we’ve deployed more than $1.8 Billion in loans to 60-plus companies.
IVCA: Why did the firm decide to join the Illinois Venture Capital Association?
Runway Growth Capital: As mentioned, we have investment teams in Silicon Valley, San Diego, Chicago and New York City. Chicago is also our corporate office, and our team here has been investing in high growth and venture-backed for years. We believe it is important to support the growth and be deeply involved in the venture eco-system wherever we have a physical footprint and investment team.
Moreover, Chicago and Illinois as a whole have an important and growing role in the innovation economy. We want to be part of the industry’s effort to promote venture capital investment in Illinois and neighboring states.
IVCA: Since Runway Growth Capital’s mission is ‘lending capital to companies looking to fund growth with minimal dilution,’ what type of companies do you generally fund and what general circumstances connect those companies to you?
Runway Growth Capital: We lend to companies with products or services across technology, life sciences, and select consumer retail – tech enabled – that have proven to be commercially viable and now in need of roll out, expanded sales and marketing efforts. As venture-backed companies go, we invest in later stage companies and can often be the last capital invested prior to an IPO, M & A exit, or progression to more traditional bank/cash flow financing.
Technology and life sciences industries are among the most attractive industries within the venture lending landscape with large addressable markets and consistent growth. We also have a portion of our portfolio that are private equity-backed companies that straddle the world of venture debt and middle market lending. These borrowers favor us because our structures and approach are more suitable to high-growth companies that are investing heavily in sales and marketing to grow top line and have not yet reached their full EBITDA margin potential.
IVCA: You lend both to sponsored (Venture Capital and Private Equity backed) and non-sponsored (owner bootstrapped) companies. Do you have different approaches in handling each of these two categories?
Runway Growth Capital: We always underwrite the business first. As a result, while understanding the cap table is of course important, our initial diligence is really concentrated on evaluating business fundamentals: What does the company sell? To whom? How is it priced, sold, and billed? What does the market look like? What do the historical and projected financials look like? How strong is the management team?
For this reason, our approaches between sponsored and non-sponsored opportunities are not terribly different in that the business profile itself must fit with our thesis regardless of its funding history. Sponsorship, or lack thereof, may start to influence how we view things later in the process, particularly how we price risk. For instance, given that much of our portfolio is burning cash, the presence of a strong sponsor committed to the space certainly provides some added comfort as a potential source of liquidity, that a bootstrapped business may not have.
From a broader market perspective, we view ourselves as natural partners with anyone seeking to minimize dilution – which covers both bootstrapped business owners and sponsors looking to maximize returns across their portfolio companies.
IVCA: Beyond funding, what other interactions or counsel are you providing to fuel the growth of the companies that deal with you?
Runway Growth Capital: As partners to entrepreneurs, we pride ourselves on being a valued resource to our portfolio companies. Whether it’s access to our network, industry knowledge, or business experience, we are committed to helping our borrowers succeed.
IVCA: What type of company pitches most spurs interest from your firm. What impresses you enough to do funding with the types of businesses in your portfolio?
Runway Growth Capital: We look to deploy $10 million to $75 million to technology, life sciences, and select consumer retail companies with $10 million-plus of revenue and steady growth. While this target represents a slightly more mature profile, our portfolio companies are still operating in a highly dynamic environment and pursuing a number of growth strategies ranging from organic to M&A, and transformational to subtle market pivots … and many are pursuing more than one at a time.
Therefore, what impresses us is a business that has taken several years to refine an attractive product and build a strong enough foundation to support steady organic growth, while being flexible and nimble enough to continue innovating. Perhaps more importantly, and what impresses the most during a pitch, is a management team that is sophisticated enough to both understand and communicate the variables that may impact these strategies, their means of monitoring progress, and the levers at their disposal to execute their plan of disciplined growth.
IVCA: What does Runway Growth Capital hope to achieve in their interaction with the VC/PE community within the IVCA?
Runway Growth Capital: Our objective to be deeply involved and well-known in the venture ecosystem in Chicago and Illinois as whole. Frequently, management teams and sponsors alike are not fully aware of venture debt availability, terms and use case.
In the current environment where management teams and early investors are ultra-sensitive to dilution, it is more important than ever to know the role venture debt can play, with both the capital and steady hand that Runway brings to the market.
For the website of Runway Growth Capital, click here.