Loan Note: Book charts venture debt’s rise; Castlelake strikes personal loans partnership

Book from Runway founder charts the rise of venture debt. Plus: Castlelake teams with Oportun for personal loans; and Bridgepoint prices its first CLO this year. Here’s today’s brief for our valued subscribers only.

They said it

“A more downbeat mood is settling in about what lies ahead for the global economy, as China’s problems spread into the financial sector, while high inflation still lingers elsewhere”

Taken from a market report by Susannah Streeter, head of money and markets at UK financial services firm Hargreaves Lansdown

First look

Venture debt takes off: Runway’s David Spreng charts its rise in new book (Source: Getty)

David Spreng: All money is not created equal
All money is not created equal is a new book from David Spreng, founder and chief executive officer of Runway Growth Capital, a venture lender founded in 2015. It might be worth a place on your reading list for what remains of the summer.

The book, brought out last month, looks at venture investing from the point of view of the start-up entrepreneur. It urges such entrepreneurs to “crack the code”, by resisting the temptation to lead their firms through multiple rounds of equity investment, at each stage diluting their own stake in their creation. He pitches venture debt as the solution to that problem.

The book is not merely a pitch for more pitches, though. It is also an account of Spreng’s personal journey. He and his brother, Kevin Spreng, a corporate attorney, created Decathlon Capital Partners in early 2011 to test out a financing mechanism that later became known as revenue-based loans (RBL).

But RBL turned out to be a bad idea for late-stage venture-backed companies. The companies and their investors look for explosive revenue growth at that stage, and tying the repayments of a loan to revenue, dampening down that ached-for explosion, was a buzzkill.

In 2015, Spreng transitioned away from Decathlon and the RBL model.

What does this book tell us about Runway? A good deal. But the starting point of it is that, as a lender to late-stage companies, Runway regularly lends money to firms that are not yet profitable (or “EBITDA positive”), but which have “meaningful revenues and a believable path to profitability”.

Castlelake closes with fintech Oportun
Castlelake, the Minneapolis-based alternatives manager founded in 2005, and consumer fintech company Oportun have closed on a $400 million whole loan flow sale agreement.

The companies describe this in a statement as a strategic relationship in which Oportun expects to sell Castlelake $400 million of personal loan production over the next 12 months.

Oportun’s chief financial officer, Jonathan Coblentz, said in the statement that the deal “highlights continued strong investor demand for Oportun’s high-quality personal loan assets” as well as Oportun’s “ability to access diverse sources of capital to drive continued profitable growth in our business”.

Oportun, a publicly owned company based in San Carlos, California that offers a namesake personal-finance app, calls itself “mission-driven fintech”. Its mission is the availability of affordable loans to consumers living in low-and-moderate-income communities.

Oportun had a strong second quarter 2023 in some respects, with total revenue of $267 million, a year-on-year increase of 18 percent.

Aggregate originations showed a decline, though. For Q2, the aggregate originations figure was $485 million, a decrease of 45 percent year-on-year. Oportun attributes this to a tightening of its credit underwriting standards and a greater focus on lending to existing and returning members.


Runway loan to Elevate
Runway Growth Capital (see above) provided $40 million to Elevate Services, a company that provides software and services to the law departments of corporations and to over half the Global 100 law firms.

The senior secured term loan announced last month will let Elevate refinance existing debt, as well as providing working capital.

Elevate, a Los Angeles-based company founded in 2012, offers legal operations software; strategy, operational and technological consulting; compliance software; e-discovery and document review; data breach responses and other such software-and-service lines in the US, UK, India, the Philippines, Poland, Australia, Switzerland, Singapore and Hong Kong.

It is in a very competitive industry but Runway has expressed confidence in Elevate. A statement announcing the loan quoted Brad Pritchard, managing director of technology at Runway: “Elevate is modernising the legal sector with powerful and practical tools that improve efficiency, work output and ultimately consumer outcomes. We are excited to partner with them on their next phase of growth.”

Bridgepoint prices first CLO of 2023
Bridgepoint Credit has priced its first European collateralised loan obligation of the year at €400 million, with Morgan Stanley acting as lead arranger.

Bridgepoint CLO V will have a four-and-a-half-year investment period and has support from more than 20 investors. It’s the firm’s first CLO since it priced Bridgepoint CLO IV in December 2022.

John Murphy, partner and head of syndicated debt at Bridgepoint, said: “We are excited to have priced our first CLO of the year and the fifth under our CLO programme, as we seek to take advantage of attractive market conditions for credit investing.”

MSCI completes acquisition of The Burgiss Group
MSCI has agreed to buy the remaining 66 percent of The Burgiss Group for $697 million in cash. This completes a process that began with MSCI’s first investment in Burgiss, a private asset data and analytics concern, in January 2020.

With the acquisition, MSCI acquires a data set that covers 13,000 private asset funds around the world. The data represents $15 trillion in cumulative investments across several asset classes: private equity, private real estate, private debt, infrastructure and natural resources.

In a statement announcing the deal, on 14 August 2023, founder and chief executive officer of Burgiss, Jim Kocis, said: “The combination with MSCI marks a significant landmark event in Burgiss’s journey. In this next phase, our combined capabilities are poised to create even more powerful solutions that can help better navigate and drive innovation across private assets.”

Among Burgiss’s capabilities is the Burgiss Caissa Platform, an analytic platform developed for institutional investors that provides a view of the drivers of performance and risk in both public and private investments in total portfolios.

MSCI said that it will fund the purchase from existing liquidity sources. It expects the transaction will close in the fourth quarter of this year, subject to regulatory approvals and customary closing conditions.

LP watch

Institution: New Hampshire Retirement System
Headquarters: Concord, US
AUM: $10.7 billion

New Hampshire Retirement System has committed $50 million to Ares Pathfinder Fund II, a contact at the pension has confirmed.

This is a new manager for NHRS and enables the pension to diversify its private credit allocation, which is now approximately two-thirds senior direct lending.

The asset-backed Pathfinder Fund II has a target of $5 billion and is expected to have a final close in the first quarter of 2024.

Platinum subscribers may click here for the investor’s full profile, including key contacts, allocation strategy and fund investments.

Today’s letter was prepared by Andy Thomson with John Bakie, Christopher Faille and Robin Blumenthal contributing